NC Budget and Tax Center

New report shows where NC economic policy is out of whack

A report out today highlights a lot of areas where North Carolina’s economic policy is badly wanting. Drawing on a trove of economic analysis, the report identifies common-sense policies that can grow an economy that works for everyone.Greatest-Hits-Social-Final_FPA-All (002)

Let’s just say that North Carolina has plenty of room for improvement. As legislators gear up for the 2016 session, here are a few ways we could move toward a more inclusive and competitive economic footing:

The report identifies a number of other areas where North Carolina’s recent policy choices are out of step with common sense and solid evidence, but these are some of the most glaring examples.

The good news is that we can do better. North Carolina is not doomed to witness the death of the middle-class, or to see poverty become an inter-generational destiny, or to watch helplessly as working North Carolinians miss out of the fruits of economic growth. We can build an economy that works for everyone, it just takes the political will to make it happen.

NC Budget and Tax Center

Governor McCrory provides glimpse into his budget proposal that he will unveil in late April

At a press conference earlier today, Governor Pat McCrory provided a narrow and preliminary look into his budget proposal for the 2017 fiscal year that begins in July 2016. His remarks focused solely on the investments that he would make in the health and services (HHS) section of the budget. The Governor stated a desire to boost investments targeting vulnerable communities such as at-risk children, adults who suffer from mental health and substance abuse disorders, and older adults with Alzheimer’s.

Governor McCrory did not mention any additional rounds of tax cuts that primarily benefit the wealthy and profitable corporations—a genuine concern given his willingness to sign into law such tax breaks in the last few budgets. He also did not mention any details for other investments that the state budget funds such as education, community economic development, and the justice system.

Without knowing all of the details of his likely $22+ billion budget and tax plan, it is unclear how he pays for the investments in his new proposal. He could pay for them with money expected to be left on the table this year, new revenues that are coming in due to a slowly improving economy here and across the nation, and/or by relying on a mix of new revenues and tax cuts. Several fiscal scenarios exist.  As such, a complete analysis of today’s news must wait until the Governor releases the full proposal later this month.

Below are topline summaries of the Governor’s health and human services budget for the upcoming fiscal year. Read more

Commentary

Why people are boycotting TurboTax and H&R Block this year

Both Dylan Matthews at Vox (“Why I’m boycotting TurboTax this year”) and Josh Hoxie at Inequality.org (“The call for boycotting TurboTax”) made a compelling case this week for boycotting the mega-corporations to whom so many of us turn to do their taxes. Both posts are definitely worth your time. This is from Matthews’:

“It’s tax season again, and that means you’re probably thinking about using TurboTax. You wouldn’t be alone; Intuit, the company that sells TurboTax, claims the app has 31 million users. Its competitors did pretty well for themselves too, with H&R Block preparing more than 20 million returns last cycle and millions more using TaxAct and TaxSlayer.

Let me be blunt: You should not pay for TurboTax. If you want to use a free version of TurboTax or H&R Block at Home or TaxAct, go nuts. But for the love of God, don’t give Intuit money.

TurboTax is an evil, parasitic product that exists entirely because taxes are confusing and hard to file. Worse than that, Intuit is one of the loudest voices on Capitol Hill arguing against measures that make it easier to pay taxes. The Obama administration has argued for automatic tax filing, in which the IRS uses income information it already has to fill out your tax return for you. That would save millions of Americans considerable time and energy every year, but the idea has gone nowhere. The main reason? Lobbying from Intuit and H&R Block.

Don’t give Intuit money. Don’t give H&R Block money. To do so is to perpetuate the status quo in which you have to file your own taxes in the first place. The best way to escape this trap is for millions of taxpayers to start doing their own taxes in hopes of weakening Intuit and H&R Block and depriving them of money they could use to lobby against auto-filing. This requires privileging your own long-term interests ahead of your short-term ones; it’s mildly annoying to do your taxes by hand for now, but in the long run, if the plan works, you won’t have to do your own taxes at all.”

And here’s Hoxie:

“Just how much are we talking? To give you just a small taste of how bad it is, consider that Turbotax’s parent company, Intuit, spent $13 million lobbying congress from 2011 to 2015 in an effort to oppose automatic tax filing. Of course, Turbotax is not alone. With them is H&R Block, another company I’ve used in the past. They spent over $7 million in just the past five years. And that’s just lobbying, not including campaign contributions.

Now you might be thinking, like I did, wait there’s a way to make tax time wicked easy? Yes, and it’s been around for decades with support ranging from Obama to Reagan. It’s called “The Simple Return” and simply requires the IRS to send you a pre-filled out return using the documents they already have. Depending on your deductions, you might have to do one more step or you might be done just by sending it back. Then you’re done. Seriously, finding a stamp might be the hardest part.”

Both might have also added the fact that Block is guilty of being a leader in the predatory tax refund loan scam.

The bottom line: Both men argue convincingly that there are better and cheaper ways to do your taxes that will be better for you and, in the long run, much better for the country.

NC Budget and Tax Center

Latest sales tax expansion highlights need for state EITC

Today North Carolinians will begin paying sales tax on various installation, repair and maintenance services on everything from appliances to musical instruments to vehicles. This modest expansion of the sales tax base was included in the state budget passed by state lawmakers last year and represents another step towards aligning the state’s tax code with a more service-based economy. Today, the purchase of services is far more common than the purchase of goods compared to prior periods and this economic activity trend is likely to continue.

The effort to better align the state’s tax code with a 21st century economy is important. However, proponents of the sales tax move have used this good tax policy to fuel far more bad ones. The sales tax base expansion is part of a larger transformation of the state’s tax code that shifts away from the income tax, which is a better tax policy tool for achieving long-term revenue adequacy via a structure that’s based on ability to pay. Furthermore, this shift away from the income tax and to a greater reliance on the sales tax fails to acknowledge the increased tax responsibility on low- and middle-income taxpayers and away from the wealthiest who have reaped the greatest benefits from tax changes since 2013.

State lawmakers continue to be susceptible to special interests and this was highlighted with decisions regarding the expansion of the sales tax. Read more

NC Budget and Tax Center

Better tax policy tool available to address state’s upside-down tax system

State lawmakers are once again considering more tax changes that won’t address what’s wrong with our current tax code or what our economy needs. During the Revenue Laws Committee meeting on yesterday, the General Assembly’s Fiscal Research Division provided committee members information regarding how raising the state standard deduction would impact taxpayers and state revenue.  This tax change would reduce the income tax owed by a taxpayer but is an expensive one that fails to efficiently target the low- and middle-income taxpayers who carry a heavier tax load than wealthy taxpayers.  A refundable state Earned Income Tax Credit is the better tool for North Carolina policymakers concerned about tax equity.

Tax changes passed since 2013 that include large income tax cuts that largely benefit the already well-off and profitable corporations have made North Carolina’s upside-down tax system worst. State lawmakers expanded the sales tax to more goods and services to partially pay for these costly tax cuts. The regressive sales tax hits low-income North Carolinians particularly hard, as they spend a larger share of their income on goods and services subject to the sales tax. This deliberate move by lawmakers to a greater reliance on the sale tax and less reliance on the income tax has shifted the tax load to low- and middle-income taxpayers and away from the well-off and profitable corporations.

In a context in which many working families earn low-wages and struggle to meet basic needs, there is increased recognition at the national level that the Earned Income Tax Credit (EITC) is the best tool to ensure workers keep more of what they earn and in so doing move families out of poverty. Here’s why a refundable EITC makes the most sense for North Carolina: many low- and moderate- income North Carolinians are not subject to a state income tax because they don’t earn enough income. However, they pay a significant share of their income in other taxes—like sales and property taxes—and the EITC helps offset the higher tax responsibility they have overall relative to wealthier taxpayers. Moreover, increasing the standard deduction would reduce the income taxes paid for all tax filers who don’t itemize, not just those with low-incomes.

Increasing the standard deduction by $2,000 not only is poorly targeted but is also costly. Fiscal Research estimates that such a proposal would reduce state revenue by as much as $205 million for tax year 2017. The actual cost may be higher considering that a higher percentage of NC taxpayers (beyond the 70 estimate by Fiscal Research) are likely to take the standard deduction as a result of tax changes since 2013. Restoring a state EITC at 5 percent of the federal amount would be half the cost of increasing the standard deduction at that level and reach nearly one million working but low-income families and their children.

If policymakers are willing to spend $200 million to address inequities in our state’s tax code then restoring a state refundable EITC and doubling its value to 10 percent of the federal amount is the better policy choice.