NC Budget and Tax Center, Raising the Bar 2016

Reinvestment should be top priority for lawmakers during the Short Session

This blog post raise the baris the first post in our week-long 2016 Raise the Bar blog series that will recap the state of the North Carolina budget and make the case for reinvestment so that all North Carolinians have a fair shot to get ahead.

Next Tuesday, state lawmakers will return to Jones Street for the start of the Short Session. The primary focus of the session will be to make adjustments to the second year of the two-year budget that lawmakers approved last year. That means that lawmakers have an opportunity to strengthen economic security for all North Carolinians and help build a more robust economic recovery.

Seizing that opportunity, however, will require lawmakers to refocus on evidence-based fiscal policies that are smart, targeted, and equitable—rather than policies that lead them further down the tax-cut and tax-swap paths that they’ve pursued. As a reminder, state lawmakers once again chose last year to cut taxes that primarily benefit the wealthy and profitable corporations, while also expanding the sales tax to new services like maintenance, repair, and installation, effectively further shifting the tax load onto middle- and low-income taxpayers.

Those tax decisions are closing the doors of opportunity for some North Carolinians and won’t fix what is wrong with our state’s economy (like too few jobs and a boom in low-wage work). The tax plans since 2013 will reduce revenue by more than $2 billion annually when fully implemented, cutting off pathways to greater economic success like early childhood development, public schools, affordable health care, supports for older adults, and community economic development while also failing to boost the economy or create the jobs North Carolina needs.

Below are four key points about the current state budget that would be good for lawmakers to reflect upon as they head into the new budget season.

  1. Current investment is at historic lows. The additional round of tax cuts that lawmakers approved last year made this the new normal. The budget capped 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. State budgets typically allow spending to grow as the population increases and the economy changes to help ensure that state investments keep up with North Carolinians’ changing needs. These long-term disinvestments have translated into significant unmet needs for our state’s growing population.
  2. The 2015 tax plan is costly, squeezing out important investments in our families and communities. The tax plan included in the budget will lose $841.8 million over a two-year period. But those losses balloon overtime: when accounting for the corporate tax breaks that are already scheduled to go into effect, we will lose more than a billion dollars per year by 2019. This ties the hands of future lawmakers who will have to contend with an even greater gap between resources and public needs, like a growing number of students.
  3. The 2015 tax plan makes our tax system more upside-down by asking even more from people who are already struggling to pay the bills. The deal included 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. All told, the lowest income working families will end up paying a slight 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. The 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 causes 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.

The current budget reflects diminished expectations for what is possible in North Carolina. We can do better, and we have done better in the past. Lawmakers may point to the expected $237 million revenue surplus as evidence that their fiscal policies are working but it’s critical to note that the national economy in recovery is primarily driving the surplus. Most importantly, the current surplus does not mean that the state will be able to meet the needs in communities and make all of the investments that are needed to boost and strengthen our economy for everyone—again that’s because of the huge tax cuts that lawmakers are prioritizing over reinvestment.

The bottom line is that NC can’t afford to debate what a successful state looks like at the margins.  In the upcoming Short Session, policymakers need to raise the bar so that we can build on the investments that have made our state great. Doing so will require lawmakers to follow what research and our lived reality shows is a better pathway to building a strong economy that works for everyone—education, affordable housing, work and income supports, and rising wages that allow families to make ends meet.

Learn more about the budget process in this Budget and Tax Center Policy Basic.

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