North Carolina’s tax changes miss the mark … again

The socio-economic hardships that individuals have battled with since COVID-19’s arrival are well-documented. The state of North Carolina and federal government have made investment decisions and developed new programs over the past year to reverse negative outcomes and jump-start recovery.

Unfortunately, many efforts have been plagued with inequities that prolong the recovery process and exacerbate longstanding disparities. The Payroll Protection Program was one such effort — which, while well-intentioned in its effort to keep people employed by their businesses — had the impact of excluding many of the businesses hardest hit, particularly businesses owned by people of color and women.

That North Carolina policymakers would choose to double-down on the disproportionate benefits by providing a tax break to businesses who have received PPP loans is perplexing — particularly given that the $367 million cost to the state could instead be invested to ensure those businesses left out of the PPP process get the support they need to stabilize their bottom-lines and remain critical anchors and employers in the economic life of their communities.

Easing tax burdens for PPP recipients

Easing tax burdens for PPP loan recipients is beneficial at face value, but it has exacerbated existing disparities for marginalized communities. To begin, women and BIPOC-owned businesses shuttered at significantly higher rates at the onset of the pandemic due to a lack of access to capital. PPP loans were intended to provide struggling businesses with much-needed cash infusions, but many minority-owned businesses were the last to receive assistance, if they received any at all.

Their PPP loan applications were also denied at disproportionate rates, funds were disproportionately directed to higher-income communities with existing resources, and clients with existing relationships received more assistance, most of whom were disproportionately white. Much of this is a by-product of the banking industry’s historic biases being exacerbated by policy oversight.

It should be concerning to policymakers that communities that have historically received inequitable assistance and investment are once again being left out in the face of one of our nation’s most dire financial crises.

Easing tax burdens for PPP recipients will help some in North Carolina’s business community, but what will be done for the many more that were excluded from these opportunities? Although data is available for North Carolina, an overwhelming majority of recipients have not disclosed any demographic data, which masks the program’s (in)efficacy. But for those who have chosen to do so, it is clear women and BIPOC-owned businesses are not able to access the support at an equitable rate. Unfortunately, this mirrors national trends.

What’s next

Without better decision making, achieving true equity in North Carolina is nothing more than a fairy tale. As a suggestion, state and local leaders could use recovery monies for targeted investments in BIPOC communities and entities such as the Office of Historically Underutilized Businesses (HUB), which administered the ReTOOL program with limited resources far below what was necessary for more sizable impacts. Our recent brief shows the importance, too, of structural changes in our policymaking to ensure that our collective commitment to building a more equitable landscape of jobs and entrepreneurship is built into our practices for the long-term.

Parker Martin is a Policy Analyst with the Budget & Tax Center, a project of the NC Justice Center.

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