NC Budget and Tax Center

Not so fast, more proposed tax changes that affect state budget

The budget passed by state lawmakers last week expanded the sales tax base to include additional services that are not currently taxed. Accordingly, the repair or upkeep of a vehicle, the repair of a broken washer or dryer, or the maintenance of an air conditioning unit will now be subject to the sales tax.

It appears that the weekend gave policymakers time for some second thoughts about their plan, however. This week, state lawmakers are now aiming to pass a bill that will roll back one particular aspect of the sales tax base expansion included in the budget.

House Bill 117 (HB 117) includes a provision that would exempt repair, maintenance, and installation services on tangible property and motor vehicles covered under manufacturer or dealer warranties from the sales tax. Accordingly, under HB 117, if your vehicle or tangible property is covered under a warranty then you don’t pay a sales tax on repair and upkeep services. To the contrary, if your vehicle or other tangible property is not covered under a manufacturer or dealer warranty then you will pay more in sales taxes.

This tax change means that two people can own similar tangible property, but one could potentially end up paying more in sales taxes simply because they don’t have a manufacturer or dealer warranty. This is troubling because it is likely to particularly harm low-income taxpayers who already pay a larger share of their income in taxes compared to the well-off. Low-income taxpayers who have to take their non-warranted vehicle to an auto shop for an unexpected repair will pay more in sales taxes, for example. Meanwhile, those who are able to afford costly warranties will escape having to pay more in sales taxes.

The backtracking on services included in the sales tax base expansion contradicts state lawmakers’ supposed commitment to base broadening on principle. Broadening the sales tax base has been sold as a way to make the state’s tax code more effective and ensure that it reflects a more service-oriented economy. That appears to be the case only if powerful lobbyists don’t object. Read more

NC Budget and Tax Center

Missed Opportunities: Investments that are MIA in the joint budget deal

Many pundits and outlets are describing the joint budget deal as a “compromise” between the inadequate House and Senate budgets. But North Carolinians from Murphy to Manteo know that we cannot compromise our future.

By pursuing deeper tax cuts, policymakers have failed to strengthen public education, public health, and safety, and the other building blocks of a strong economy.

The new tax plan will lose $383.6 million over a two-year period, with the annual loss ballooning to $692.9 million by the fifth year. Revenue losses will grow by another $458 million over the next two years when accounting for corporate tax breaks that are already scheduled to go into effect. All of these revenue losses will add to the damage from the 2013 tax cuts, which result in $1 billion in lost revenue each year when fully implemented.

That’s why it’s no surprise that there are a lot of investments in vital public services that are needed but missing from the new budget deal, like public education, public health and safety, and rural economic development. There has been plenty of coverage of what is in the budget over the last day and a half but there has been little coverage of what’s not in the budget.

Below is a short list of investments that are missing in action but still greatly needed to build a stronger, more inclusive economy for us all. Read more

NC Budget and Tax Center

Follow the money: Joint budget deal includes major tax changes that reduce ability to rebuild broadly shared opportunity

Yesterday, legislative leadership unveiled a joint budget deal that puts the train on the wrong tracks by pursuing deeper tax cuts at the expense of strengthening public education, public health and safety, and the other building blocks of a strong economy. The deal includes another costly round of income tax cuts, additional tax breaks for selected industries, and an expansion in the sales tax base to include installation, repair, and maintenance services. The tax plan will lose $383.6 million over a two-year period, with the annual loss ballooning to $692.9 million in by the fifth year.

The state Senate is scheduled to give preliminary approval of the 500-plus page deal at 2pm today and final approval tomorrow, despite its 11:30pm release last evening. The House is expected to vote on the deal as early as Thursday, with it headed to the Governor’s desk after a final vote. The stop-gap spending measure that is currently in place expires Friday at midnight and would need to be extended for a fourth time if a final budget deal is not in place by then.

While most of the public budget debate this week will be on the spending side, examining how lawmakers pay for the budget deal is just as important. This is especially true due to this new round of costly tax cuts that come on top of the $1 billion annual tax cuts approved two years ago. Both tax plans drain resources that otherwise could have been used to build opportunity and replace the worst cuts enacted since the economic downturn. Read more

NC Budget and Tax Center

Still no evidence that tax cuts lead to prosperity

We still don’t know exactly what kind of tax and budget deal will emerge from the legislature when it wraps up business in the coming weeks, but it will likely include another round of tax cuts for large multi-state corporations. We’ve also seen an alarming push to bake further tax reductions and spending limits into the state constitution, called TABOR, which would constitutionally mandate policy that we’ve never even tested through regular legislation, and which has been a proven failure in Colorado. Against this backdrop, remember that there is no evidence that tax cuts can solve the economic challenges that we face.

Tax cuts have not improved North Carolina wages. Now that we have recovered from the worst of the Great Recession, many economists see a lack of wage growth our most pressing economic challenge. Wages in North Carolina are even more stagnate than for the US as a whole, a problem that has not been solved by tax cuts over the last few years. The average hourly wage in North Carolina is now roughly $3 less than the national average, a gap that has actually widened since the first major round of recent tax cuts passed in 2013. Tax cuts have not solved our wage problem, and there’s no reason to expect that change.

Read more

News

TABOR: Wrong for women and families

More evidence is mounting everyday that the investment-killer known as TABOR would be disastrous for North Carolina.

Now, NC Women United has compiled a tremendous list of reasons that TABOR will jeopardize the future of NC’s women and families. By imposing artificial spending limits that aren’t related to economic reality, we will miss the chance to build prosperity for everyone in North Carolina. A quick excerpt:

As you may imagine, that is a recipe for a state that will eventually fail all of its citizens, particularly its most vulnerable. This legislation has been introduced in 30 states, and only one – Colorado – has ever fully accepted it and implemented it. And that went so well, the citizens of CO voted to get rid of key pieces of it. …

The state provides a lot of services to everyone; that’s its job.  In particular, it provides services to the most vulnerable citizens that can’t get their needs met in the private market. The for-profit market stays away from certain services – like domestic and sexual violence crisis services, and services to assist the homeless and those experiencing food insecurity –  because there is no real opportunity to make a profit from those services (and also the nature of for-profit business means those businesses may feel more vested in making sure there is a continued need for the product they are selling rather than for solving a social problem). This is why we have a balance between public and private enterprise. TABOR legislation plays on the widespread misunderstanding the public has about how government is funded, and what services the government actually provides to us all (see this chart for an example of the services that may be left out with TABOR in place). These services help not just individuals, but also businesses, who make use of the investments we make in our common good – education, infrastructure, a thriving middle class – to sustain their organizations.