Commentary, NC Budget and Tax Center

Budget & Tax Center: A costly cover for more business tax cuts in N.C.

Senate President Pro Tempore Phil Berger

In the same session that North Carolina senators approved a proposal to cut taxes for high net worth companies, lawmakers have also passed legislation increasing the standard deduction.

The stated reasons for doing so is that it will reduce taxes for everyday North Carolinians by increasing the threshold of income upon which the low flat income tax rate, 5.25 percent, is applied.  It will also, as proponents claim, mean fewer people will file income taxes.

The policy reasons for reducing the income tax rolls are limited. In the end, fewer people filing income taxes means fewer people are able to receive credits and deductions that could help them with the higher tax load they carry due to sales and excise taxes — not to mention rising property taxes at the local level.

The biggest problem with continuing to raise the standard deduction threshold is that a large number of North Carolinians claim the standard deduction rather than itemize.  By continually increasing the income threshold, we are delivering a costly tax break that is poorly targeted to families struggling to get by.  It is a policy that does less work than is needed right now to address the upside-down nature of the tax code.

Analysis from the Institute on Taxation and Economic Policy shows that 27 percent of the total net tax cut from the increase in the standard deduction will actually go to the top 20 percent, while just 7 percent will go to the bottom 20 percent whose income leaves them in poverty each year. Read more

Commentary, Education, Legislature, NC Budget and Tax Center, News

Budget & Tax Center: Another cut for big business that will reduce revenue for schools, communities

N.C. Senate finance leaders are moving a tax cut bill for businesses with high net worth this week, even as the legislature has failed to put forward a comprehensive investment plan addressing the priorities of communities across the state.

That’s right. There is no final, comprehensive budget for our communities, but legislative leaders in the Senate will still give tax breaks to big companies.

Senate Bill 578 will adopt the franchise tax cuts proposed in the legislative budget at a time when corporations across North Carolina are paying the lowest corporate income tax rate applied to their profits in any state that taxes corporate income.

As the Budget & Tax Center detailed in an earlier analysis, this is not a tax cut that will reach the majority of businesses in North Carolina, and like corporate income tax cuts before it, it is unlikely to change the decisions of businesses around hiring or location.

There are numerous rigorous studies of the issue to confirm that the theory behind such claims hasn’t played out in reality: Businesses aren’t going to relocate en masse because of a franchise tax cut.  This makes sense given what researchers have noted as the real-world problems with suggesting that a tax cut for business will deliver new economic activity.

  1. When businesses get a tax cut, particularly at the state level, that means that other people will have to pay in the form of higher taxes or spending cuts. Balancing out the net effect on the economy has led most researchers to conclude that even new economic activity doesn’t replace those dollars or minimize the harm of the tax shifts and spending cuts that result from the loss of revenue.
  2. All state and local taxes paid are a very small share of businesses’ total expenses, estimated at between 2 and 4 percent. That means even substantial tax cuts will have little effect on profitability.
  3. Relocation decisions are rare and not the primary source of job creation in a state. And most researchers have found that relocation decisions are more likely driven by proximity to markets or suppliers, quality of roads and transportation networks and availability of workers, for example.

Perhaps the most pernicious false claim around this and all tax debates in North Carolina is that tax cuts will generate more revenue by driving greater economic activity.

The reality, of course, is North Carolina will have less revenue because legislative leaders chose to cut franchise taxes for companies, particularly companies with net worth over $20 million from which most franchise taxes are collected.

The legislature’s Fiscal Research office estimates the franchise tax provision will reduce revenue by $240 million in the first year, and grow to $270 million in Fiscal Year 2023-24.

Those dollars could make significant progress toward pressing needs for everyday North Carolinians by:

  • Making child care more affordable
  • Investing in affordable housing development
  • Supporting home health care and services for the state’s older population
  • Monitoring the quality of our air and water and the level of regulation needed to more adequately protect against toxic dumping

North Carolina leaders have not prioritized these pressing needs for North Carolinians in their piecemeal budget approach, but they appear certain to continue to deliver a piece to big companies.

Alexandra Forter Sirota is the director of the N.C. Justice Center’s Budget & Tax Center.  

NC Budget and Tax Center

New research confirms: Tough immigration enforcement policies do not lower crime rates

New research released by professors at the University of California at Davis finds once again that there is no relationship between deportation and the level of crime in communities. It also debunks the myth that programs of cooperation between local law enforcement and immigration authorities like Secure Communities and 287(g) agreements make communities safer, confirming the stance of sheriffs across North Carolina who have renounced such programs.

The research, looking at thousands of local communities across the country and using unique data on deportation and crime rates, finds that:

  • Places that deported the most appeared no safer than those that deported the fewest.
  • Aggressive enforcement and deportation does not lead to faster resolution of criminal cases.
  • Deportation is not an effective way to address crime.

For years, researchers have documented the lack of evidence supporting claims that more aggressive enforcement of federal immigration law contributes to public safety goals. As the New York Times reporters write:

“Research demonstrates that immigrants overall and undocumented immigrants in particular are less likely to be arrested than the native-born population; that both are less likely to be incarcerated; and that immigration does not raise an area’s local crime rates (neither does undocumented immigration).”

Our own research in North Carolina on the costs of aggressive enforcement by local governments of federal immigration law shows a high cost to all taxpayers. The cumulative cost to North Carolina taxpayers over the past decade of cooperation with the federal Immigration and Customs Enforcement was at least $81.7 million. These are dollars that could have been redirected to other public safety strategies and the promotion of opportunities for communities to thrive such as investments in youth development programs, and public education.

Alexandra Forter Sirota is the Director of the Budget and Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

N.C. lawmakers resort to trickery for budget that’s bad for our state

It appears that House leaders couldn’t get their way through debate and compromise, so rather than coming to the table with everyone, they used trickery to override the Governor’s veto of a budget that fails our state and every North Carolinian. Only 64 out of 120 House Representatives were present this morning when the vote was called after Democrats were told there would be no vote and some were at commemoration of the historic 9/11 attacks.

A final budget should lay out a vision for where our state is headed and how it plans to get there. It is the single most important policy decision that legislators make each year. It is a statement of their priorities and a marker of their stewardship of our tax dollars.

Legislators in our democracy are tasked with the tough work of negotiating those priorities and finalizing the budget. After failing at that work, legislators took the extreme step once again of changing the rules of the game.

The benefits of those changes will help very few in the near term and no one in the long-term.

This budget, which was vetoed by the governor and overridden by only about half our Representatives — which will go into effect should the Senate also override — fails to recognize the reality of a state that is growing apart economically and civically.

Where one lives in North Carolina determines whether there are jobs available for all those looking for work, whether there is quality child-care available for working parents, or even how long one will live. Public investments, particularly at the state level, can go a long way to making sure every community can thrive and every person can live a good life and reach their full potential. Despite the national economic expansion, North Carolina has continued to reduce spending as a share of the economy. Lawmakers have effectively dug a hole deeper than any modern-day recession has created in our state’s budget because of the priority that they have given to tax cuts for the wealthy and big companies.

When the Governor presented a counteroffer to legislative leaders after his veto of their inadequate budget, he asked them to prioritize the health of North Carolinians and stop tax cuts for high net worth companies so that greater progress could be made in investing in families and communities. Read more

NC Budget and Tax Center

This Labor Day, policies needed to knock down barriers to employment for all

The North Carolina Justice Center released its annual State of Working North Carolina report today. As workers, their families, employers and communities reflect on the critical role that work plays in well-being, the report lifts up the barriers that persist block Black and brown workers from good, quality jobs and the necessary role of public policies in connecting every North Carolinian–white, Black and brown– to good, quality jobs.

The report provides data on:

  • The current employment, unemployment, and wage data for North Carolina including breakdowns by race and ethnicity. Less than 60 percent of North Carolinians have reported being employed during most of 2019, which is both lower than the national average and well shy of the levels that North Carolina reached in the past 30 years. North Carolina regularly achieved levels of employment throughout the 1990s that were substantially above the national rate, but the state has seen that record erode during the last few economic cycles. Policies that drive job creation in places that aren’t seeing job growth in the economic recovery such as through investment in public institutions or policies like Medicaid expansion that support hospitals as anchor institutions and employers in rural areas are critical to this goal.
  • The wage differential for workers of color and white workers by educational attainment and union membership. Closing the difference in wages earned by Black and brown workers and white workers is critical to advancing the well-being of the state. It can both improve the financial security of individual families but has an impact across generations by providing for greater income to build assets and wealth and by supporting a whole host of outcomes that indicate improved well-being for communities including greater resiliency. If the difference in union median wages for Black workers and white workers were eliminated, Black workers would earn $11,780 more each year. Policies that drive more equitable wage outcomes would increase the minimum wage standard while also providing for the ability of public sector workers to collectively bargain.
  • Specific barriers that affect access to jobs, such as longer commute times, penalties upon exiting the criminal justice system, and challenges of post-secondary training and N.C.’s growing need for these skills. Identifying and removing the barriers that block Black and brown workers from equitable employment outcomes are critical to achieving the economic boost that many researchers have identified (and PolicyLink quantified for North Carolina here).  Policies that give all people access to affordable post-secondary education and licensure and public investments that keep post-secondary institutions affordable and create a public transportation infrastructure that connects people to jobs can smooth the way towards employment equity in North Carolina.

The economic recovery continues to elude too many North Carolinians.

To truly drive the benefits of this expansion to each and every person regardless of race, ethnicity, gender or where someone lives, this Labor Day our policymakers should commit to connecting more people and places to the good, quality jobs that boost the economy for all.