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NC Budget and Tax Center

2016 may be the year that families working in low-wage jobs get the spotlight that they deserve from policymakers. Policymakers and candidates on both sides of the political spectrum are finally discussing economic policies that they purport will improve the lives of people who work hard to provide for their families but struggle to afford the basics.

Several Republican presidential candidates turned their attention to economic hardship and income inequality at the Kemp Forum on Poverty last weekend. In a positive development, one candidate voiced his support for expanding the Earned Income Tax Credit for low-income childless workers so they can keep more of what they earn and make ends meet. Another candidate lifted up the benefit of adopting and expanding state EITCs—advice that is in line with a growing body of research that shows how the credit helps at every stage of life. Both policies would reduce poverty for children and families.

Unfortunately, such endorsements for stronger EITCs are out-of-step with GOP policy choices here in North Carolina, where state lawmakers axed the state credit in 2013—despite the fact that in one in three Tar Heel workers earn poverty-level wages.

While it is welcome news for candidates to pay unprecedented attention to poverty, it is concerning that a good share of the discussion falsely portrayed fundamental truths about poverty trends, the effectiveness of work and income supports (i.e. the safety net), and how the proposals discussed would in reality increase material hardship and poverty. Read More

NC Budget and Tax Center, Uncategorized

The 2015 year brought plenty of budget missteps on Jones Street—from another round of tax cuts to state investments that are mired at historic lows. Here’s a look at the top 10 missteps that state policymakers should address in 2016.

  1. State lawmakers once again chose to cut taxes that primarily benefit the wealthy and profitable corporations over meaningful levels of reinvestment. The tax plan will reduce revenue by $1 billion annually when fully implemented, cutting off pathways to greater economic success like early childhood development, public schools, and community economic development while also failing to boost the economy or create jobs.
  2. State lawmakers failed to restore the state Earned Income Tax Credit (EITC), which benefited nearly 1 million families and their 1.2 million children. Yet, they chose to expand the sales tax to new services like maintenance, repair, and installation, effectively further shifting the tax load onto middle- and low-income taxpayers.
  3. The 2015 tax changes make our tax system more upside-down by asking even more from people who are already struggling to pay the bills. Under full implementation of the tax package, the lowest income working families will end up paying a tax increase of $7, on average, whereas millionaires are the big winners again with a tax cut of more than $1,800 on average.
  4. This budget doesn’t address falling wages, just as the last two budgets failed to do. In 2013 an hour’s work in NC earned around $2.50 less than the national average; now that gap has grown to almost $3.00. Allowing the state’s lowest-income families to keep more of what they earn through an EITC is a key way to build a stronger economy, along with a higher minimum wage and collective bargaining rights, but legislators failed to restore the tax credit and raise the minimum wage.
  5. State investment is at historic lows. State lawmakers passed a budget that keeps state spending as part of the economy below the 45-year average. That would be fine if needs have shrunk but they’ve grown. State budgets typically allow spending to grow as the population grows and the economy changes, especially after an economic downturn when revenues plummet and services are frozen or cut.
  6. State investments break an unwelcome modern record as they remain diminished. Lawmakers passed a budget that caps off the only period since 1971 in which state spending declined as a part of the economy for seven and eight straight years while the economy itself grew. Continuing on a tax-cut path means there simply won’t be enough revenue left over to repair critical investments or to position our state to compete.
  7. Eight years later, state investment remains below pre-recession levels despite more children to educate, more older adults to care for, and more citizens to serve and protect. Such long-term disinvestments have translated into significant unmet needs for our state’s growing population—a shortage of K-12 textbooks, school nurses, and community services for older adults.
  8. This budget continues to hold us back from ensuring educational success for every child. For the current school year, lawmakers invested more per student compared to the 2015 fiscal year budget but well below 2008 pre-recession levels—nearly $500 less per student. This will cause real harm to the classroom and educational outcomes. The number of students in North Carolina schools has continued to increase since 2008, yet the amount of funding per student— and, therefore, the resources available to educate each student—has not been state lawmakers’ priority over tax cuts.
    • For example, textbook spending is below half its 2010 peak level, leaving some schools with outdated textbooks or with no textbooks at all.
  9. Continuing down a tax-cut path is deepening cracks in NC’s opportunity structure—and it has left several vital areas of public programs and services inadequate.
    • For example, lawmakers kept year-over-year spending flat for the pre-kindergarten program that serves at-risk 4-year olds. They failed to restore the more than 6,400 slots lost since 2009 or give opportunity to the 7,200 children stuck on the waiting list.
    • For example, tuition at community colleges rose for the seventh consecutive year to $76 per credit hour from $72—an 81 percent increase since 2009—increasing the likelihood of a college education being out of the reach of many.
  10. This tax-cut path—and the revenue losses that come with it—also mean that some investments are completely missing from the budget.
    • For example, there is no cost-of-living adjustment for retired public employees like former state troopers and teachers despite their shrinking purchasing power due to changes in the economy.
    • For example, there is no Medicaid expansion, which means lawmakers denied affordable health care to about 500,000 North Carolinians.
    • For example, there is no support to ensure that all rural communities have reliable high-speed internet access that is increasingly essential to participating in the global economy—which leaves struggling rural communities further behind urban areas.

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NC Budget and Tax Center

Budget writers announced over the weekend that the Senate and House leadership agreed to a basic framework for a final budget deal. That framework includes a pay raise for teachers averaging roughly 7 percent and further cuts to the Medicaid program that provides health insurance and long-term care to children and adults who are poor, disabled, and elderly. There is no question that other vital programs and services will be cut due to a lack of adequate funding, resulting from lawmakers’ choice to make room for unaffordable tax cuts for the wealthy and profitable businesses in 2013.

While the full details of the final budget deal will not be released until this afternoon at 1:30pm, below are five things we expect to be true in the final budget deal: Read More

NC Budget and Tax Center

Plans to finance both public education and transit at the local level would be stopped in their tracks under HB 1224 that passed the state Senate Finance Committee yesterday. The bill not only places a hard cap on the local sales tax rate at 2.5 percent but also only allows counties to levy a sales tax increase for either education or transit—not both.  This bill joins a slate of other bills that would restrict local control. The full Senate is scheduled to vote on the bill Monday night.

In effect, the bill restricts local governments’ authority to meet local needs and balance their budgets. Importantly, the bill is aimed at shifting the responsibility of funding public education away from the state and towards local governments. The state clearly cannot afford last year’s tax plan and now legislators are proposing budgets that would make serious cuts to public education as a result. Those cuts would have to be absorbed by children in the classroom or addressed at the local level, putting local governments in a tough spot having to choose whether or not to make up the difference via a local tax.

Local governments are dealing with the fallout from last year’s tax plan in other ways too. They no longer have access to the school Capital Building Fund, which received a portion of revenue generated from the state corporate income tax. Schools used this fund to help them meet their education obligations, as my colleague explained last month. The result is a $382 million dent over the next five years. This loss is on top of the looming $63 million-annual dent resulting from elimination of the local privilege tax in 2015. Read More

Falling Behind in NC

If you work hard and play by the rules, you deserve a chance to get ahead. This is why the Earned Income Tax Credit was invented: to help families with low-paying jobs make ends meet.

Unfortunately, North Carolina is the first state in 30 years to eliminate its Earned Income Tax Credit. This move abandoned a bunch of our neighbors, people with stories like Kara’s:

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There is no more stark illustration of why tax policy matters. With NC job growth coming primarily in low-wage industries, we’re going to need the Earned Income Tax Credit — and other measures that work for working people — more than ever.