NC General Assembly can afford to go all-in to address COVID-19 harm

Leila Pedersen and Suzy Khachaturyan contributed to this post.

As legislators return to Raleigh this week, the state’s latest Cash Watch data for the week of Jan. 11, 2021, shows that North Carolina has $4.4 billion in unreserved funds —  leftover after meeting current appropriations and available to meet current needs.

State lawmakers should appropriate these dollars immediately to meet the rising hardships facing families, the challenges in containment of the coronavirus and roll-out of the vaccine, and the financial pressures on local governments and public institutions that need to expand services to protect the common good.

North Carolina can afford to put people first and respond robustly to COVID-19 while putting communities on sounder footing for the future.  These dollars show that North Carolina need not solely rely on the restrictive and time-limited aid, like what the federal government delivered at the end of December.

North Carolina’s state leaders can invest in a plan for the long-term that strengthens our collective well-being. As one economist recently suggested, failing to do so would be like “pouring fuel on a raging dumpster fire.”

The irony of course, is that the state has these dollars, in part because of years of chronic under-investment fueled by an ideology that privileges the few at the expense of us all. The very institutions that are now charged with the frontline response — the Division of Employment Security, the state’s local public health offices, school districts, and the early childhood system to name a few — are hampered by the resulting loss of staff and resources that diminishes the ability to adapt to the changing conditions.

  • For the past decade, North Carolina General Fund spending has remained below the 45-year average of 6% of total state personal income (the total amount of income received by people within the state in a given year).
  • In fiscal year 2019, the state spent just 4.9%of state personal income in state appropriations.
  • North Carolina would have needed to spend an additional $5.3 billion last fiscal year to get back to the 45-year average of spending as a percentage of state personal income.

Unreserved funds are partially a reflection of the General Assembly’s failure to pass a comprehensive budget for the past two years and a longer-term refusal to meet the demands of families and communities struggling to make ends meet. Investing these funds in our public institutions today could set a different trajectory for our state — one that improves health care access, keeps people in their homes, expands educational opportunities, and fuels our economy.

The other factors driving the unreserved balance — an economy that is consolidating benefits for the wealthy and profitable corporations —  underline the need for such a robust public response and supports that will push against these economic trends that threaten to deliver an unequal and uneven recovery.

A deeper look at the November 2020 Monthly Report on the General Fund shows that tax collections are running ahead of where they were in the prior year despite the pandemic. Total tax collections are up 17%, or about $1.6 billion, from this time last year. This is largely due to the combined impacts of stabilization from federal and state relief policies and the economy continuing to deliver record profits and income growth to the privileged few.

The federal stimulus in 2020, which included taxable Unemployment Insurance payments to hundreds of thousands in North Carolina who lost their job, stabilized income collections, and the Payroll Protection Program kept many workers employed. The now well-documented quick recovery for the wealthiest in our country and state also meant income losses weren’t as deep in the aggregate, even as many workers earning low wages continue to struggle to return to pre-pandemic income levels.

As the graph below shows, high-wage earnings in North Carolina as of Oct. 15, 2020, increased by 4.2% while employment for low wage work is still 20% below pre-pandemic levels.

Finally, corporate profits are notably up in the state. Seventeen of the top 25 most profitable corporations nationally were expected to rake in $85 billion more in profits during 2020 than what they averaged in the four years before the pandemic.  That means that even as the income tax rate remains the lowest in the country at 2.5%, corporate income tax collections are higher than the prior year. If North Carolina’s corporate income tax rate were 6%, the Institute on Taxation and Economic Policy estimates that the state would collect about a billion more dollars a year.

North Carolina’s legislative leaders have an opportunity to go all-in now on COVID-19 relief and make clear their long-term commitment to a just recovery. The stability of the state’s public response is likely to hasten the recovery and, if designed with people’s well-being at the center, can ensure that it is a just recovery  that puts us all on sounder ground for the future.

Alexandra Sirota is the Director of the Budget & Tax Center, a project of the NC Justice Center. Leila Pedersen and Suzy Khachaturyan are policy analysts with the Budget & Tax Center.

A lesson for NC: Raise taxes on high earners and everyone reaps the benefits

Across the country, voters passed a number of the progressive ballot measures , bringing millions of people in states like Florida, Colorado, Louisiana and Arizona closer to realizing higher wages, securing paid leave and sick days, and reducing inequality.

After more than nine months of the COVID-19 recession — on top of a decade of slow growth that failed to reach all Americans —people are looking for proven policies that will protect their families from further income losses, that will move their communities past the harmful reach of a paycheck-to-paycheck economy and on to the stability and promise of improved well-being.

There is also a growing recognition that public institutions — and adequate funding of them — is essential to our quality of life and to the support of our democracy. 

For example, the ballot measure Proposition 208 in Arizona.  It asked voters to support an increased tax rate on higher incomes to fund public education, which has long fallen short of the standards for a quality education for the state’s children. By placing an income tax surcharge of 3.5% on incomes over $250,000 for single filers or $500,000 for joint filers, Arizona schools will have the resources for instruction, student supports and teacher pay, as well as professional development of new teachers.

Such a proposal in North Carolina would go a long way to helping  to fix the documented constitutional violation in our state of providing a sound, basic education to every child. If North Carolina raised its current flat income tax rate of 5.25% by just 3.5 percentage points, bring it to 8.75% only on high-wage earners, as in Arizona — that would provide $1.12 billion for investment in public education. Given North Carolina’s income tax cap, even raising the rate on these higher incomes to the limit would provide $560 million in resources. 

Ninety-nine percent of the tax increase would affect the top 1%. The bottom 95% of taxpayers in North Carolina would experience no change in their income taxes.

It makes sense for North Carolina’s policymakers to start looking at higher rates on higher incomes. Not only has the state failed to meet its constitutional obligation to provide every child with a sound, basic education, but the pandemic is also wreaking havoc on public schools across the state. Economic fallout from the virus has revealed the threadbare supports resulting from a decade of underinvestment in public health, affordable housing and social services. 

For North Carolina, the fix to our current challenge of growing inequities and hardship will likely require additional changes, as well as work to remove policies like the arbitrary income tax rate cap in the state Constitution. It is therefore all the more urgent that policymakers get to work right away; like the pending vaccines developed from years of research and investment, starting to invest now in our future will make us all more secure. 

More evidence of the state’s inadequate, inequitable unemployment insurance system 

The persistent joblessness across North Carolina as evidenced in today’s labor market report, as well as federal inaction are leaving workers without the supports to weather the current public health and economic crisisIn combination with state policy choices in recent years, the result is that North Carolina’s unemployment insurance program is blocked from delivering the critical stabilizing support to families and communities that is necessary for a full and just recovery 

Last week, the U.S. Department of Labor released the latest weekly data on unemployment insurance claims, showing not only that the number of jobless workers remains elevated but also that initial claims increased week over week.  Nationally, initial claims last week were greater than the second worst week of the Great Recession. 

More than 19,000 initial claims in North Carolina were filed the week of Oct. 10, compared to 15,500 initial claims last week and 3,700 initial claims in the same week last year  

Since policy changes in 2013, North Carolina’s unemployment insurance has been designed, to do very little to bolster  workers through job loss and economic crisis. Instead, changes were meant to pay down debt quickly so employers would not have to pay more in taxes after unemployment insurance tax cuts in the 1990s 

The state system is particularly ill-equipped to handle the unique characteristics of this recession, as it excludes many of the workers those who are part-time and earn low wages who have been hit hardest by the COVID-19 recession. 

Indeed, North Carolina’s bad UI policy is putting jobless workers at a greater disadvantage in this recession and pandemic than jobless workers in other states. It means that North Carolina is leaving federal dollars on the table that could be helping jobless workers now.  It will make the pathway to recovery for the state economy steeper overall 

Here are three examples of how features of our state Unemployment Insurance system are blocking jobless workers from the support that is needed to keep consumers spending and economies on the road to recovery. 

  1. The length of time that a jobless worker can receive unemployment insurance in North Carolina is capped at 20 weeks (unlike the national standard of 26 weeks), but it can also drop to as low as 12 weeks based on the unemployment rate averaged over a set of months.This sliding scale that is not based on the immediate experience of the labor market meant, when the pandemic hit, that jobless workers could only receive 12 weeks of unemployment insurance at the start of the pandemic. For many workers who lost their jobs then, state unemployment insurance expired back in June.

    When jobless workers exhaust their state unemployment insurance, they can move to the federal Pandemic Unemployment Compensation program and then the Extended Benefit Program.  The duration of the Extended Benefit program decreased this fall because it too, is tied to the state’s duration.This means North Carolina’s jobless workers will have three and a half fewer weeks of unemployment insurance even if, during this pandemic, there aren’t jobs to go back to.  At a time when many people have been out of work, the duration of Unemployment Insurance is being held down by policy choices, not by need for support.

  1. Another announcement this fall was that the Lost Wages Assistance program has ended in North Carolina, meaning that jobless workers have reverted to the weekly benefit amount that they are eligible for under the state system. In September, the average weekly benefit amount received by jobless workers had dropped to $210. The goal of unemployment insurance is to replace lost wages at a level that keeps workers from being pushed into deeper hardship and stabilizes the economy.  Economists generally agree the goal should be 50% wage replacement. The September average weekly benefit amount represents approximately a 25% wage replacement rate.

  1. Finally, legislative leaders attempted to address the issue of inadequate benefits this fall and loss of the federal $600 per week boost — and enacted a temporary increase of $50/week for jobless workers.  Because of the design of the program and the timing, jobless workers who exhausted state benefits before Sept. 6 and are now on federal benefits are likely to be excluded.

    North Carolina’s exhaustion rate was already high pre-COVID-19 due to the short duration of state unemployment insurance.
     But the number of jobless workers who are losing unemployment insurance without finding new work is higher than the total starting unemployment insurance since June. Nearly 300,000 jobless workers exhausted state unemployment insurance through August 2020.

The issue of too little wage replacement for too short in time for jobless workers matters for the ability of people to pay rent, keep food on the table and keep businesses open that depend on people spending locally. It also means that North Carolina has cut off workers, businesses and the economy from the full benefit of federal unemployment insurance programs at a critical time.   

U.S. Senate COVID-19 relief proposal falls far short of need across N.C.

(Photo: Wikimedia Commons)

It is foolhardy to look at the current state of hardship in our country and fail to offer a genuine response. Yet the U.S. Senate did just that yesterday with its failure to pass adequate COVID-19 relief that matches the need facing families, communities, and state and local governments across the country.

North Carolinians can’t afford half measures from Congress as more than a million households are at risk of eviction and more than half a million remain out of work. People — Republicans and Democrats, Black, brown and white — support aid that would keep neighbors from being pushed into poverty and ensure that state and local governments can sustain services and the jobs of so many North Carolinians.

So long as our leaders delay their response or offer half-measures such as Presidential Executive Orders and paltry Senate bills, the response to the pandemic will be drawn out and recovery delayed.

The fundamental reality that policymakers have failed to fully grasp is that helping people helps the economy. Allowing hardship and uncertainty to persist is not only cruel but bad economics.

People and the economy need the strong foundation that direct aid and public institutions can uniquely provide as we all await the containment and mitigation of the public health crisis.

We may have gotten used to politics as usual, but the situation facing North Carolinians is anything but. As this once in a generation crisis continues, Republicans and Democrats must work together to make sure people can keep a roof over their head, put food on the table, and support their children, families and neighbors.

We demand a public response that is worthy of the lives unnecessarily lost in this pandemic, and the lives devastated by the economic fallout. Future generations will not forgive us for anything less.

General Assembly chooses politics over people in COVID relief bill

Image: AdobeStock

The North Carolina General Assembly gave final approval to its plan for spending additional Coronavirus Relief Funds yesterday; the bill has been sent to the Governor.  

The proposal is another brick in the wall that legislative leaders are building between the people of this state and the promise of a way out of this immediate crisis and to a better life. That wall of flawed policy choices, misdirected dollars and inadequate responses has been built over a decade and will continue to block our state from a full and just recovery.  

Even the most simple, basic, and obvious funding decisions to help millions of people in North Carolina survive the COVID-19 crisis are ignored in the legislation.

Years of underinvestment left us ill-prepared to respond adequately and in a timely way to the pandemic and the job losses that have followed. It didn’t have to be that way nor did the suffering have to be so acute and so inequitable. 

We would be much better position to weather this current crisis if our state had committed, at any point over the last economic expansion, to affordable rental housing and utilities, a strong unemployment insurance system, the expansion of Medicaid,  a robust safety net to address poverty, workplace protections and living wages.

Instead, legislative leaders chose tax cuts for big companies and the rich. 

Once again, yesterday, they displayed a misunderstanding of the realities that people face. They made clear just how out of touch they are with the hardships families are grappling with today. People don’t need money to have a nice dinner out and a babysitter; they need a quality and affordable childcare option so that they can go to work. They need access to reliable broadband and technology and investments in public schools that educate their children. They need help making their rent, paying utility bills and putting food on the table.   

The state’s response is made worse when there is a lack of input from people directly affected by the policy choices — and no chance for any but a few lawmakers to meaningfully contribute to the legislative outcome. It is made worse when the priorities for our states recovery are decided in less than 48 hours.  

The Extra Credit Program provides a case in point. It would send a total of $440 million in checks to families with children  because there is no political will to deploy these resources toward a systemic response that could sustain support in the long-term.

Such an approach flies in the face of what we know works for securing well-being and an economic recovery for all. While that $440 million is less likely to reach those with very low incomes, those struggling the most in this public health and economic crisis, $124 million will go to taxpayers in the top 20%.

Such a policy design in a pandemic would only be pursued by legislative leaders bent on ignoring the realities of the majority of our state’s population who have incomes that aren’t keeping up with the costs of basics.   

Here is what’s at stake today in North Carolina: More than 1 million North Carolinians are at risk of eviction. Nearly 800,000 North Carolinians lack access to affordable health care in a pandemic. More than 1.8 million North Carolinians are behind on utility payments.  More than 1 million people have filed for unemployment.  Our state is failing to comply with the constitutional obligation to provide a sound, basic education to every one of the 1.5 million children enrolled in public schools. 

The weak and inadequate response in HB 1105 means that so many North Carolinians and their families who are facing tremendous uncertainty and hardship will continue to struggle without the help that our state should be providing. Putting people first in policy making is what lawmakers are elected to do; unfortunately, yesterday, they chose politics over people.  

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