Archives

Commentary, NC Budget and Tax Center, Raising the Bar 2015

Editor’s note: The following post by Jeremy Sprinkle, communications director at the NC State AFL-CIO, is the latest installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved. 

No one wants North Carolina to have a strong economy more than its workers, who want to be able to work and to earn enough to support their families. Our state budget includes vital investments in supporting our current and future workforce, for example through workforce development, re-employment support and early childhood education, and our K-12 public school system. We know that making investments in these areas ultimately benefits all workers, families and our economy.

Unfortunately, legislative leadership in North Carolina has not pursued a path of investing in our workers and future workforce, but instead implemented a costly tax plan passed in 2013 that bleeds the state of much needed revenue for workforce development and training and innovative, proven initiatives that would create good-paying jobs in our state. The plan they passed gave big tax cuts mostly to profitable corporations and individuals at the very top of the income scale. Legislators based the pursuit of this strategy on a theory that tax cuts lead to higher job creation. However prior experience and research tells us that tax cuts don’t create jobs and they don’t grow the economy.

The 2013 tax cuts haven’t fixed the labor market despite disproportionately going to so-called “job creators” – the wealthiest North Carolinians and profitable major corporations.

As billionaire venture capitalist Nick Hanauer has said, if it was true that tax cuts for the rich created jobs, we would be drowning in jobs — but we’re not.

There are more people looking for work today than before the recession, and many of the jobs out there are low-wage jobs that don’t pay enough to support families or to reverse the decline of our middle class.

In fact, adjusting for inflation, an hour’s work today actually buys less than it did in 2007. Another tax cut isn’t going to fix that.

The way to raise wages and fix the labor market is by investing in our workforce and by empowering more workers to engage in collective bargaining to turn low-wage jobs into good jobs.

Policymakers have for too long asked working families to pay more and settle for less.

The 2013 tax cuts for the wealthy forced the state to slash programs that would have helped workers recover from the recession and rebuild their lives.

Workforce development, reemployment services, child care subsidies, and the Earned Income Tax Credit have all been cut or eliminated. Meanwhile, the cost of job training at community colleges or of pursuing a higher education is more expensive than ever.

Workers are consumers, and that makes us the real job creators in our economy. There aren’t enough wealthy people to make up for the declining buying power of North Carolina’s workers, and another tax cut for the rich won’t change that.

If lawmakers want to create jobs, they need to invest in workers, and investment takes revenue, revenue that is lost by cutting taxes.

And if they want to do something meaningful to put more money into workers’ pockets, they’d be better off encouraging workers to form unions and bargain collectively than by doubling down on the failed ideology that tax cuts are some sort of cure-all that past experience and common sense tell us just isn’t true.

 

Commentary

foreclosed house-for Rob(1).jpgHere’s an issue from the current state policy debate that hasn’t gotten nearly enough attention in recent days: the General Assembly’s new plan to tax homeowners who manage to get some of their debt forgiven in order to avoid foreclosure and stay in their homes. Under the new gas tax compromise brokered by the House and Senate and tentatively approved yesterday, the Senate’s original plan to tax these homeowners for the loan forgiveness — something the feds do not do — has been put back in the bill.

As the one state capital journalist who has been doing a consistently solid job of following this issue, Mark Binker of WRAL, reported last week:

“North Carolina has decided to charge taxes on some items that would have gone untaxed due to changes to federal laws. The most controversial change along these lines has to do with mortgage debt that is forgiven.

When someone who is in a financial pinch has the amount they owe on their home forgiven through a debt relief program, that can be counted as income. The federal government decided not to tax this amount, but the state will under the Senate Bill 20.

This change was controversial when the measure passed through the Senate because it levies a big tax bill on those trying to work their way out of debt. When House lawmakers first passed this bill, they excluded the mortgage forgiveness from taxes. The compromise measure takes the Senate position.”

You got that? even as people throughout the state gnash teeth and get hot under the collar about a few pennies on a gallon of gas, many North Carolinians will now quite possibly and unnecessarily lose their homes as the result of new taxes that directly defeat the purpose of public programs that were designed to save them. The move is, in short, a perfect symbol of the shortsighted and regressive approach to tax policy that is one of the signature features of the current state political leadership.

NC Budget and Tax Center

On Wednesday, the Senate Finance committee heard presentations that made the case for more changes to the state’s tax code. While beginning with many of the economic realities in North Carolina—stagnant and falling wages, persistently high poverty, and slow growth— the presentation prescribes the wrong medicine: more cuts to the income tax in favor of applying the sales tax to more goods and services.

It’s a surprising conclusion to reach as prior “reform” efforts based on income tax cuts for the wealthy and profitable corporations have not allowed North Carolina to invest in the state’s economic recovery. It’s even worse with evidence mounting that shifting more of the tax load onto average people is causing real damage.

It’s clear that more tax cuts for the wealthy and profitable corporations aren’t the best tools to address the economic issues highlighted in the presentation. Tax cuts do nothing to address the fact that workers aren’t seeing their wages grow, despite increasing productivity. Tax cuts that primarily benefit the wealthy and profitable corporations do not help alleviate poverty. Instead, such an approach jeopardizes the ability of the state to invest in pathways to opportunity—the schools, research and development, and business start-ups that create a vibrant economy.

We have long advocated for tax reform, and a genuine and thoughtful plan to modernize our tax code is still needed today – not in spite of 2013 tax changes, but because of them. But shifting the state away from the income tax to rely more on sales taxes, as the leadership presented yesterday, will make things worse, not better. It will not help address the ups and downs in revenue collections and will mean that everyday North Carolinians carry more of the tax load while wealthy taxpayers get a tax cut. This is especially true if such tax shifts don’t seek to offset a greater reliance on sales tax with a strong state EITC.

Here is what should be the focus of legislators’ reform efforts: Read More

NC Budget and Tax Center

State legislative leaders said tax plan changes were supposed to help most North Carolinians, while groups like the Budget & Tax Center cast skepticism at those claims, predicting that the average North Carolinians would see their share of the tax load increase as the richest in the state enjoyed tax breaks.

So what happened in your household? Did you see your state income taxes go up or down this year? How did it affect your family finances? Was the change worth the broader impact on your community and public services?

We want to hear from North Carolinians filing their taxes or preparing taxes for others. With the new Policy Watch feature Your Soapbox — The Tax Shift, we’re hoping to lift up the stories of those who have been most affected by the tax changes and what that means for their quality of life, their communities and public services. We are already hearing personal stories from people and their families who stand to be affected by the tax shift. One North Carolinian writes:

I am paying almost as much to the state in income taxes as I do to the federal government. For what? All I hear about is the state cutting services like unemployment, etc., for people like myself in the lower end of the economic scale. What I am getting for my tax dollar, exactly, except more grief?

Others are already seeing massive increases in their North Carolina income taxes. One family saw a whopping 564% increase between 2013 and 2014; instead of owing $251, this year they owe $1,415.00.

My (Stroke Victim) And my wife’s (Asthmatic) medical expenses for 2014 averaged $952.92. Medical expenses were not allowed as a deduction on the 2014 NC SIT [state income tax].

The NC Legislature also eliminated the Personal Exemption of $2,500 per person. Our income from Pensions, Social Security, and small investments increased 1.034% from 2013 to 2014. We have been significantly impacted by the 2014 SIT changes and definitely were not considered by Governor McCrory at the signing of the Bill when he stated “Everyone will benefit some from this bill.”

This is just the beginning of what will be likely be a widespread impact of the tax plan, one that will be felt by North Carolinians from across the state and from all walks of life.

Share your story using the submission form here. If you have photos, videos or other media you would like to include, please email them to Julia Hawes at julia@ncjustice.org.

NC Budget and Tax Center

State lawmakers are targeting cash-strapped homeowners as they continue to pursue tax changes that would shift even more of the tax load to low- and middle-income taxpayers, while preserving tax benefits that have largely flowed to the wealthy and profitable corporations.

Legislation approved by the state Senate (Senate Bill 20) would require homeowners to pay state income tax on mortgage debt forgiven by lenders. Meanwhile, financial institutions that provide such consumer relief are allowed to deduct the expense as a tax write-off.

The proposal would undermine a key element of North Carolina’s recovery from the nationwide housing crisis that fueled the Great Recession. In the wake of the crisis, a number of financial institutions  agreed to  settlements that provide consumers relief for unaffordable mortgages. This often meant reducing the amount of principal debt they owed on their mortgages to make them more affordable and lessen the likelihood of foreclosure. Furthermore, the 49-state National Mortgage Settlement encourages mortgage servicers to provide such relief to distressed borrowers affected by the housing crisis.

The goal of these settlements is to ensure that homeowners who were preyed upon by unethical lenders do not fall into the financial tailspin that foreclosure often creates. The tax change proposed by the Senate would require cash-strapped homeowners who have already suffered from the disastrous housing crisis and economic downturn to report this debt forgiveness as income, even though no actual cash is provided to the homeowners.

This could deter families from accepting bank offers to modify their mortgage loans because they cannot afford to pay taxes on the amount of relief they get. Distressed homeowners seeking to stabilize their finances and rebuild in the wake of the housing crisis would face a major setback. Read More