Without a change of course, the NC legislature is setting us up for perpetual fiscal crisis

Lawmakers are set to squander the opportunity provided by federal COVID-19 relief

The leadership of the North Carolina General Assembly is ready to undercut the power of state aid from the American Rescue Plan by continuing its relentless pursuit of income tax reductions to the tune of at least $2 billion or, much more likely, greater than $5 billion. Federal COVID-19 aid to North Carolina totals $5.4 billion, so these proposed permanent reductions will squander our chance to catch up in the work of building a foundation of opportunity for every community.

Years of income tax cuts mean the state could have an estimated $11 billion less in revenue if the legislative tax changes take full effect. That number could be even higher if the House leadership and Governor agree to the outright elimination of the corporate income tax by 2028.

Such a reduction to the state revenue used to support public schools, public health, environmental protection, and so many other building blocks of our quality of life would be roughly equal to 30 percent of revenue collections in Fiscal Year 2027.

These deep income tax cuts are a self-imposed reduction to revenue that are equal to two times what was experienced during the Great Recession. At that time, budget cuts led to reductions in Medicaid provider rates and delivery of health care services like prescription drugs and dental care for children and drove higher tuition rates at community colleges and universities.

The elimination of the tax on corporate profits alone (from the current low rate of 2.5 percent) will reduce available revenue by $900 million annually. That $900 million is equivalent to a quarter of the annual funding increase required by the courts to make progress toward providing a sound, basic education in Fiscal Year 2028. The loss of these public dollars will have impacts to school districts statewide and affect their ability to provide textbooks, instructional support, transportation, and more to every child.

The personal income tax rate reduction would have an even larger impact on the state’s capacity to invest in opportunities for all. House tax cuts are estimated to reduce revenue by $1.5 billion, and analysis of fully phased-in Senate cuts to personal income tax suggests the revenue loss to the institutions and systems that support communities and people’s well-being would be an estimated $9 billion.

This $9 billion is nearly equal to the state’s support for the entire K-12 education budget through the General Fund.

The planned income tax cuts designed by Senate and House leaders aren’t going to drive economic growth — just as tax cuts haven’t put North Carolina on a better path than other states in the region in recent years. Instead, they will ensure that the very wealthy receive a disproportionate share of the tax break and will do nothing to address the growing inequality. Read more

U.S. senators propose long overdue unemployment insurance reform

U.I. Improvement Act would be a down payment on improving the nation’s system of jobless benefits — especially in states like North Carolina

This week, U.S. Senators Ron Wyden, Michael Bennet and Sherrod Brown introduced legislation that would take some important first steps toward a building better federal-state unemployment insurance system for workers, businesses and the economy.

North Carolina Senators Richard Burr and Thom Tillis would do well to support this effort to make sure the federal budget includes the necessary changes in unemployment insurance that will keep the program relevant to (and supportive of) the modern economy. The measure will be essential to keeping North Carolina on equal footing with other states in the provision of wage replacement that is necessary for a just recovery.

The Unemployment Insurance Improvement Act would set a minimum standard for regular unemployment insurance payments of 26 weeks and attach the calculation of benefit amounts to a formula based on the most recent calendar quarters worked, and include at least four quarters to ensure adequate wage replacement to support people as they look for a new job. The legislation would also ensure access to unemployment insurance for those seeking part-time work and support upgrades to program administration in order to help assure more timely- eligibility determinations.

North Carolina currently provides a sliding scale that can drop as low as 12 weeks of benefits, which has led to the state providing the shortest duration of support in the country. This short duration means people are more likely to lose wage replacement before they find a new job and, in the current context, create a greater reliance on federal unemployment insurance programs. In fact, North Carolina has a “recipiency rate” that is among the lowest in the country with somewhere around only 10% of unemployed workers receiving unemployment insurance benefits. Eighty percent of North Carolina’s unemployment insurance revenue in the past year came from federal programs. Those dollars not only stabilized households—indeed, recent data show a big impact in keeping many out of poverty—but also aided in steadying the state economy and ensuring the state’s revenue collections were more stable than would otherwise have occurred in the downturn. This, in turn, helped ensure the state didn’t have to make deep budget cuts.

North Carolina also uses a formula that no other states use for calculating weekly benefits, effectively looking only to the two most recent quarters of wage data. This has the effect of reducing a person’s unemployment benefit payments because jobless workers often see their wages reduced before a layoff. For North Carolina jobless workers, the average weekly benefit amount provides just 23 cents for every $1 in lost wages and thus fails to effectively stabilize their income.

It is clear that North Carolina jobless workers would benefit from federal unemployment insurance reform that sets a universal minimum standard for what states must provide when people lose work through no fault of their own. It should also be evident that the severe reductions and cuts to North Carolina’s unemployment insurance program enacted in 2013 have hurt our competitive advantage in workforce and economic development, and are now actively harming our economic recovery from the pandemic and greatly contributing to human suffering.

The pace and strength of the economic recovery will depend on whether jobless workers remain connected to the labor market and connected to jobs that allow them to reach their full potential. Right now, labor force participation rates remain below pre-COVID-19 by 2.1 percent and employment levels are down by 2.5 percent.

The bottom line: The Senate proposal would advance important first steps toward an unemployment insurance system redesign that would enable it to meet the needs of working people in today’s economy.  The bill should have the support of the North Carolina congressional delegation and provide the momentum for the additional reforms that will be needed.

Alexandra Sirota is the director of the N.C. Budget & Tax Center.

Data reveal a big error in how NC has pursued economic recovery from the COVID-19 recession

Tying economic life support to employment equity goals would be better for all

A new report from the Economic Policy Institute shows that the cutoff of federal unemployment insurance will reduce incomes and curtail spending, further increasing hardship and likely slowing the progress toward a full recovery from the COVID-19 pandemic downturn.

In North Carolina, an estimated $2.3 billion in income will be lost annually, which in turn will reduce household spending and demand in the broader economy.

As North Carolina deals with the fallout from this federal cutoff, it is worth reflecting on the role that policies aimed at stabilizing the economy play in a downturn and a recovery. So-called “automatic stabilizers” are key tools that increase assistance to people when times are bad and pull back on support when conditions are improved.

When the American Rescue Plan passed in March, federal unemployment insurance benefits were set to expire on September 6. This arbitrary date for the cutoff was scheduled to arrive, regardless of where the country stood in recovering from the pandemic and economic downturn. And on September 6, the cutoff happened — even though the Delta variant surge was well underway and labor market measures were already suggesting a slowdown in the economy.

In short, a key support for jobless workers and the economy ended too soon. The flaw in tying a policy change to a certain date rather than connecting it to the desired economic outcomes is the threat of a slower and less equitable recovery.

When people have not recovered from a recession, neither has the economy.

Policymakers should learn a lesson from this failure and redesign our systems and policies so that the response to a crisis is both timely and sustained until all those harmed by a recession have secured a foothold on the path to financial security.

The well-documented inequities in the economic damage caused by the pandemic recession require that policymakers not just ensure that our economic stabilization tools are automatic but also tie them to indicators of how those most harmed by this recession and historically excluded from assistance are faring. Acting in this way — not based on the average unemployment rate, but instead based on such indicators as the unemployment rate for Black workers, who experience deeper job losses in downturns and slower returns to employment — would benefit everyone

In North Carolina, the latest data from the second quarter of 2021 showed that the unemployment rate for Black and Latinx workers was 7.7 percent and 7.5 percent respectively, compared with 3.5 percent for whites. The reality is that barriers to employment and re-employment persist for workers of color in particular, and the harms of COVID-19 have disproportionately impacted these same workers because of segregation in the workforce, lower wage work, and generational barriers to wealth building.

Without a combined commitment to reach full employment for all workers and systematically remove barriers to employment for all workers, disparities will persist and hold back the economy. During the last effort at expansion, research from PolicyLink showed that North Carolina stood to gain $11.3 billion annually in economic activity from pursuing full employment for all by reducing the barriers to work for Black and brown workers and all rural workers.

Policies that center Black and brown workers are a boon for our entire economy. North Carolina and the nation would be better served if we tied our commitment to strengthening the economy to how people are faring. Enacting such automatic stabilizers is an essential step in building a more resilient and inclusive economy.

Alexandra Sirota is the Director of the N.C. Budget & Tax Center.

NC needs to make sure every eligible family receives the expanded Child Tax Credit

National analysis conducted by the Census Bureau shows that the first payment to families of the temporary and expanded Child Tax Credit (CTC) worked to bring down challenges with paying for household expenses and reduced food insecurity.

This builds upon the solid foundation of research that cash income matters in households — and households with children in particular.

It is also common sense. With more income available, people are able to meet basic needs that otherwise go unmet and often generate greater costs and greater hardship in the future.

In North Carolina, an estimated 924,000 children were excluded from receiving the full benefits of the CTC before the expansion. After expansion, some 130,000 children were estimated to be lifted out of poverty by the expanded credit, which both provided additional value and ensured that families with very low incomes would receive the credit.

Now with the expansion, there remain two issues for families with children.

The work to make this temporary policy permanent — something that’s a significant part of the federal budget debate right now — is a top priority.

But an equally important issue that hasn’t gotten nearly enough attention in North Carolina is making sure that everyone who is eligible receives the CTC. By ensuring maximum take-up of the CTC, children, families and the broader economy will benefit.

In North Carolina, an estimated 46,000 children were in newly eligible families that did not file income tax returns in 2019 and 2020. A low estimate is that $138 million is not going to families and children where it can generate the powerful benefits of increasing security of food and finances. An estimated additional 52,000 newborns are also likely eligible but not currently receiving the CTC.  The Center on Budget and Policy Priorities estimate that $337 million is the Child Tax Credit total for families who need assistance to claim it.

In every NC House and Senate district, there are households that will need to be reached to make sure that they receive the Child Tax Credit this year.

A new report from the Center on Budget & Policy Priorities details the proven tools to increase take-up. Among them are:

  • Including information about the Child Tax Credit at all public agencies and enrollment sites for other public programs;
  • Providing on-site tax filing support for families at local Department of Social Service offices, Community Health Centers, child care or K-12 schools;
  • Using state and federal resources to fund outreach campaigns to get the word out; and
  • Funding direct help for families to file for the Child Tax Credit and other benefits for which they may be eligible but are not receiving.

North Carolina policymakers can make a commitment to these families in every district of the state that they will help families connect to the resources that have already been made available to them through federal action. It would serve as a demonstration that they recognize the hardship that too many North Carolina families with children continue to face and the high costs of ignoring it to us all.

Alexandra Forter Sirota is Director of the Budget & Tax Center. Logan Rockefeller Harris, a Senior Policy Analyst for the Budget & Tax Center, contributed to this report.

NC House tax plan isn’t good for our state (and these graphs explain why this is the case)

The N.C. House tax plan would continue to reduce income tax rates even as economic hardship persists and real, sustained investments will be required to ensure that the state and every community can thrive.

The plan reviewed in the House Finance committee Monday afternoon would reduce the state’s flat income tax rate to 4.99 percent after Jan. 1, 2022, and phase down the corporate income tax rate from 2.5 percent to 2.25 percent in tax year 2024 and to 1.99 percent beginning in tax year 2025.

These rate cuts aren’t nearly as bad as the Senate’s proposal, but make no mistake — they aren’t good either. (And Speaker Moore’s statements in a press event yesterday, suggest that the House leadership shares the Senate’s goal of getting to zero income taxes.)

The full impact of the changes by 2025 would be a reduction of $2 billion in annual revenue that otherwise could have funded priorities for the well-being of the state and the people. By just the second year of the biennial budget, the state’s revenue with these tax cuts would fall below the required funding level needed to keep up with enrollment growth in K-12 and post-secondary schools, as well as the costs of delivering health care services.

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