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North Carolina has the 10th highest poverty rate in the nation—down from 13th last year—with more than 1 in 4 of its children living below the federal poverty line. Our state also faces widespread income inequality and less economic mobility than the nation and the southeastern region. Rather than pursue a mix of tax and budget policies that boosts economic security for middle-class and low-income families, state lawmakers instead enacted a tax plan that shifts taxes away from the wealthy and towards the bottom 80 percent of taxpayers, on average.

The tax plan drains $525 million in available revenue for public investments over the next two years—a figure that balloons to at least $650 million within five years.

Consider what could have been done to help improve a child’s shot at the American Dream if state lawmakers didn’t choose to cut taxes for the wealthy and profitable corporations. Over the next two years, these dollars could have been used to provide a package of poverty-busting and mobility-lifting investments such as:

  • Eliminating the waiting list for the North Caroline pre-Kindergarten program;
  • Keeping and strengthening the state Earned Income Tax Credit, which helps boost the income of families who work in low-wage jobs;
  • Maintaining the income tax deduction for contributions to North Carolina’s 529 college savings plans (which was eliminated in the tax plan); and
  • Maintaining funding for the 10 nonprofits that promote economic development in economically lagging and distressed communities across the state – these entities include the Institute of Minority Economic Development and its Women’s Business Center

Despite lawmakers’ assertions, academic research simply lacks consensus on whether cutting taxes is an effective strategy for boosting the state’s economy and creating more jobs.  However, an established and growing body of research exists that show the value of public investments, which serve as the building blocks of a strong economy and family economic security. Read More

The second Quarterly General Fund Revenue Report from the Fiscal Research Division of the NC General Assembly reveals some underlying and troubling trends in the economy. It also foreshadows some of the particular challenges of the new tax plan—namely the tax rate reductions for profitable corporations.

On net, the General Fund was $83.5 million above the $10.02 billion revenue target for the first-half of the current fiscal year that ends in June. Revenue collections were ahead of target largely due to a “stronger-than-expected” performance by the corporate income tax. As the economy has slowly improved, corporate profits have been on an upward trend. Collections from the corporate income tax were ahead of target by nearly $90 million.

The new tax plan, however, diminishes the ability of corporate income tax collections to contribute to public investments and support revenue recovery after a downturn in the future. Read More

Businesses in North Carolina have been instructed by the state Department of Revenue to have their employees complete a new NC-4 tax form and workers and employers may be unclear as to why this is required. The simple answer is that the tax plan signed into law by Gov. McCrory means taxpayers will be paying more or less in NC personal income taxes starting next year.

Employers in the state are required by law to withhold a portion of their employees’ wages, typically each pay period, for NC personal income taxes and the NC-4 form helps employers estimate the amount of taxes to withhold. The new NC-4 form attempts to ensure that no employee is stuck at the end of the year owing a lot in NC personal income taxes or is owed a large refund by the state as a result of employers continuing to withhold NC personal income taxes based on 2013 tax laws. Read More

The hope-filled message behind the American Dream is becoming a nightmare for many families in North Carolina. Due to the widespread income inequality in the state, economic mobility (the ability of people to improve their economic standing) is becoming more difficult for North Carolinians. This translates as well to intergenerational economic mobility, or the ability of children to achieve higher economic status than their parents. While factors such as education attainment, geography and socioeconomic status impact the ability of individuals to get ahead, a recent study by the National Bureau of Economic Research finds that more progressive tax expenditures are positively correlated with higher intergenerational mobility.

Specifically the progressivity of mortgage interest deductions and Earned Income Tax Credits (EITC) each have positive correlations with the ability of children to be more successful than their parents. In addition, the progressivity of state income taxes is also found to be significantly related to higher intergenerational mobility, thus paving the way to true achievement of the American Dream. Read More

It is true that the final budget reinvests in some programs and services to achieve an overall slight increase in General Fund appropriations. This reinvestment was made possible by using unspent dollars from last year’s budget, budget gimmicks, the reliance on tuition increases and fees, as well as reductions in other areas of the budget. However, state investments in most areas of the budget—including education—are failing to keep up after years of budget cuts.

There are two primary vantage points for analyzing the final budget and making comparisons over time.  One method is to measure the final budget against the actual dollars that were appropriated last year in the 2013 budget.  The other method measures the final budget against the continuation—or base—budget, which reflects the dollars needed in the next year to maintain current service levels.  The Governor’s Office of State Budget and Management, which is headed by Art Pope, collaborates with the various departments and agencies to determine the continuation requirements.

So, which vantage point makes for the best comparison? Read More