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NC Budget and Tax Center

Tax cuts never live up to the extravagant promises of job creation and economic growth so often made by their supporters, and last year’s tax reductions are unlikely to turn out any differently. The most recent example is Kansas, which enacted massive tax cuts in 2011. Two years later the state has experienced slower job growth than the national average, contraction in the number of businesses employing people, and loss of its AAA bond rating resulting from its catastrophic, 50% loss in revenue.

While there remains no consensus among academic economists that tax cuts are a strategy to grow the economy—instead, evidence is mounting of their harm—some think tanks keep trying to play the same hand to get a different result. One example is the Beacon Hill Institute, which has frequently deployed its State Tax Analysis Modeling Program (STAMP) during tax cut debates in various states across the country, including last year in North Carolina. Using this model, Beacon Hill claims to show that lowering taxes, or refusing to raise them, will benefit state economies. In the case of North Carolina, they also went a step further to claim that all income groups get a tax cut on average.

A new report from the Institute on Taxation and Economic Policy reveals a number of serious flaws in the STAMP approach that undermine the accuracy of its claims. In doing so, it calls into question the rosy scenario Beacon Hill paints for tax-cutting states like North Carolina.

Follow me below the fold for are some of the problems identified by ITEP:

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Blatantly contradicting past passionate positions is nothing new for the current conservative leadership of the General Assembly. Whether it’s the abandonment of their once deep concern for transparency in budgeting or their amnesia when it comes to political gerrymandering,  the folks running the show on Jones Street today can do a “180” on a supposedly principled position faster than you can say “Mr. Pope is on line one.”

This week’s classic case in point is the issue of “local control” and the once deep concern that conservatives supposedly had for assuring that as much power as possible be vested in the governmental bodies that were “closest to the people.” As it turns out, this formerly fervent belief was really more like a rough guideline — especially when it comes to the matter of local governments imposing the business taxes that they see fit.

Today, editorials in both the Wilmington Star-News and Fayetteville Observer rightfully take the General Assembly to task for their recent action in advancing a bill that would cap local privilege license fees on all businesses at $100.

Here’s the Observer: Read More

NC Budget and Tax Center

It comes as no surprise to working families that North Carolina’s tax system is fundamentally unfair. Families who make less than $47,000 a year pay, on average, nearly 2 times more of their income in state and local taxes than those making more than $345,000. But taxpayers don’t have to accept this fundamental unfairness. One of the best ways for our state to improve the fairness of its tax structure is through reinstating a refundable Earned Income Tax Credit.

A new report, Improving Tax Fairness with a State Earned Income Tax Credit, by the Institute on Taxation and Economic Policy shows just how effective a refundable Earned Income Tax credit (EITC) can be in counteracting North Carolina’s upside-down tax code.

Twenty-five states and the District of Columbia already have some version of a state EITC. Most state EITCs are based on some percentage of the federal EITC. The federal EITC was introduced in 1975 and provides targeted tax reductions to low-income workers to reward work and boost income. The federal EITC has targeted income limits to restrict eligibility and better support beneficiaries. By all accounts, the federal EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children.

In the same vein, states should look to the EITC to improve tax fairness.

North Carolina took that important step in 2007 by establishing an EITC at 3 percent of the federal credit which then subsequently increased to 5 percent. The average refundable state EITC is equal to 16 percent of the federal credit. When state lawmakers allowed our state EITC to expire after 2013, North Carolina had a refundable EITC at 4.5% of the federal credit, well below the average. In North Carolina, as in most states, it would take a fairly significant EITC to begin to offset the upside down nature of state tax codes.

As discussed in this report, lawmakers in Raleigh can take immediate steps to address the inherent unfairness in the tax code by reinstating a refundable state EITC. Ultimately, lawmakers should not only reinstate NC’s EITC but work to make it a higher percent of the federal credit. While it would cost revenue to reinstate North Carolina’s EITC, such revenue could be raised by repealing tax breaks that benefit wealthy taxpayers and corporations, which in turn would also improve the fairness of our state’s tax system.

 

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McC709The General Assembly kicks off the summer session at noon but the big story of the day comes an hour later when Governor Pat McCrory unveils his budget recommendations for next year.

It is worth remembering that McCrory only proposes the budget, the House and Senate actually approve it. And if last year is any indication, the final budget may not look much like the one released today.

Last March, McCrory sent lawmakers a spending plan that called for a one-percent across the board raise for teachers and state employees.  The final budget that lawmakers passed and that McCrory signed contained no raise for teachers or state workers.

McCrory’s budget called for $58 million in new funding for textbooks in schools to restore some of the cuts in textbook funding in the last two years. The final budget included no new funding for textbooks.

McCrory’s budget called for $9 million more for instructional supplies for schools. The final budget that passed the House and Senate instead cut another $6 million for classroom supplies.

And McCrory’s budget called for $3.3 million in funding for the highly successful drug treatment courts that the Republican General Assembly had defunded in the last two years. McCrory even singled out the drug courts in his State of the State speech. But the final budget passed by the General Assembly included no funding for the drug courts.

There are plenty more examples and then there is tax reform. McCrory also said in his State of the State speech that any tax reform must be revenue neutral, but the final tax plan approved last summer will cost $600 million a year when fully implemented and is a major reason why there is a budget hole this year and a shortfall projected for next year.

So take whatever you hear today and read in the headlines tomorrow about McCrory’s budget with a grain of salt. The leaders of the House and the Senate will make the major budget decisions again this year, not the Governor, no matter how assertive he promises to be.

NC Budget and Tax Center

In the past week lawmakers in Connecticut and Maryland have taken steps to strengthen their state Earned Income Tax Credit. And by strengthened, we’re talking increasing the state’s EITC from 25% to 28% of the federal EITC. Meanwhile, North Carolina prepares to enter a legislative short session next week where lawmakers can boast to the claim of being the only state in the nation to eliminate the EITC in nearly 30 years.

North Carolina’s state EITC was a modest boost (starting at only 3.5% of the federal EITC in its inaugural year in 2007 and topping out at 5%) , but no doubt provided an extra couple hundred dollars in the pockets of working poor families to help pay the bills and put food on the table. On the whole, working families in all 100 counties of North Carolina infused over $100 million into the state’s economy in 2012 by spending their EITC to meet immediate needs.

Further, the EITC is one of the most effective child anti-poverty tools in the nation, with the federal EITC alone lifting almost 300,000 North Carolinians out of poverty, half of them children. Paired with a strong state EITC, families who work hard and yet still struggle to get by in difficult times can have the extra boost they need at tax time to make a needed car repair so they can get to work reliably, or pay a utility bill to keep the power on.

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