Five damning truths about the state Senate’s deceptive tax bill

North Carolina’s conservative Senate leadership are grossly exaggerating the benefits of a new bill in a clear attempt to fool the public.

Senate sponsors claim their rewrite of HB 334, the JOBS Grants and Tax Relief bill, will assist businesses most in need with grant funding and proposed tax cuts to corporations will trickle down to the average North Carolinian. Do not buy it. These claims could not be further from the truth. Here are five hard truths about the proposal:

#1 – HB 334 won’t help businesses that need it the most

The JOBS Grant program would be funded with $1 billion in American Rescue Plan Fiscal Recovery Fund dollars to help businesses with disruptions and costs incurred by COVID-19. This is roughly 20 percent of all American Rescue Plan monies coming to the state to meet a range of public health and economic challenges. While this is beneficial at face value, money will only be awarded to businesses that received “eligible” funding from previous state or federal recovery programs (e.g., PPP Loans). If bill drafters are claiming HB 334 helps businesses most in need, wouldn’t it make most sense to target those that were unable to secure prior aid monies? Why not help these businesses stabilize their operations, re-open, and re-hire?

#2 – HB 334 would reinforce previous failings in business aid

Proponents claim the JOBS Grant Program would support businesses owned by people of color and women, but the bill falls well short of delivering on that promise. Overwhelming evidence shows these businesses were disproportionately denied or unable to access support from federal and state programs. Instead, funds from recovery programs were disproportionately directed to higher-income communities with existing resources, while businesses with existing relationships with financial institutions received more assistance, most of whom were disproportionately white.

One of the few programs that targeted women- and Black, Indigenous, People of Color (BIPOC)-owned businesses specifically was North Carolina’s ReTOOLNC, but this was not explicitly mentioned in HB 334 as a program that would allow prior recipients to engage in this new funding opportunity. At the very least, shouldn’t an effort be made to include our state’s lone women- and BIPOC-owned business initiative in the bill’s language?

There has been poignant pushback from the right as it pertains to targeted programs, particularly those with an emphasis on marginalized groups. One of many reasons for this is the desire to be “fair” and equal (as opposed to true equity.) That is why it is baffling they would give additional monies to people who have already received assistance. None of this seems very fair at all.

#3 – JOBS Grants are being used to hide a bigger gift for profitable corporations and their shareholders

The JOBS Grant program is flawed, but worse yet, it is being used to distract from a sweetheart deal for corporations. HB 334 includes the complete elimination of the corporate income tax by 2028 and a change to the base subject to the franchise tax that benefits large, profitable, multi-state businesses with high value property. But North Carolina has a history of being lenient towards corporations.

To begin, our state already has one of the lowest corporate income tax rates in the United States. A recent report published by North Carolina’s Department of Revenue shows corporations only make up 2.9 percent of the state’s tax revenue, total tax liabilities for both C-Corporations and S-Corporations have trended downwards, and North Carolina’s corporate income tax rate has decreased 5 percentage points over last two decades. Corporations operating exclusively in North Carolina only account for 8.8 percent of all tax liabilities, meaning most corporate tax revenue is coming from multi-state entities. The “savings” from proposed tax cuts will equate to more money for shareholders that are largely out-of-state.

#4 – Corporate tax cuts will likely benefit rich, white, and older shareholders the most

President Trump claimed his 2017 corporate tax cuts would help people, spark investments, and translate into a $4,000 raise for the average household. Instead, we have seen an overwhelming majority of these savings going to shareholders, a slowing in private investments, and more than 55 the nation’s largest corporations paying no federal income taxes at all. This should be a lesson learned.

It is also concerning that many of the biggest corporations which do business in North Carolina saw record profits during the pandemic. If history has taught us anything “tax relief” will simply allow these entities and their shareholders, which are disproportionately older and white, to increase their wealth. The rich get richer while the average North Carolinian continues to struggle.

Source: Board of Governors of the Federal Reserve System

 

Source: Board of Governors of the Federal Reserve System

It is an insult to claim HB 334 is helping all North Carolinians recover and become financially secure. It is not helping businesses with the greatest need, and it is not helping the average person or household. The only ones being helped are those that are already well-off.

#5 – There is a better way to build an inclusive recovery

If elected officials truly have their constituents’ best interests in mind, they would focus on building a truly inclusive economy. For example, 85 percent of North Carolina’s new job growth stems from in-state businesses. If this is the case, all North Carolina businesses, not just those that received prior aid, should be eligible for recovery grant monies. Those that have not received any aid, like the disproportionate number of HUB-certified firms and other women- and BIPOC-owned businesses, should rightfully be prioritized. This helps all of our businesses, their employees, and their respective communities.

We could also drop the outdated rhetoric and stop offering tax cuts to multi-state corporations. Instead, we could think about implementing a statewide livable wage, health care for all, and improvements to our public education system. Corporations, the same ones legislators are trying to appease with these ludicrous tax cuts, believe overall quality-of-life is more important than corporate tax rates when making site selections. North Carolina should be doing the same instead of shortchanging its residents.

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

For an effective and equitable recovery, NC must direct dollars to hardest hit local governments

The last downturn in North Carolina — the Great Recession — resulted in a slow and geographically concentrated recovery that never fully reached all counties by the time COVID-19 hit. At the conclusion of 2019 and the pandemic’s subsequent onset, 42 of the state’s 100 counties still had fewer jobs than before the Great Recession.

If current recovery efforts do not help communities replace lost jobs and income, stabilize housing, and improve the health and well-being of families, North Carolina will reinforce persistent inequities. Those inequities will make it increasingly difficult for our state to promote economic mobility for children and families, support business entrepreneurship, and reduce the concentration of disparate outcomes.

Intentional public policy choices at the state level will be imperative in ensuring that North Carolina recovers equitably. The aid that local governments receive from the American Rescue Plan also will be a critical tool for communities to deploy those resources that are proven to support economic well-being.

COVID-19 has impacted local governments specifically in a range of ways. Communities across the state are being challenged by the reduction in local revenues (primarily occupancy and prepared meals tax), the loss of fees, and moratoria on utility payments alongside the rising need to ramp up vaccination drives, remote school services, and supports to businesses.

The American Rescue Plan represents the first time in the COVID-19 federal relief packages that all local governments and tribes are guaranteed to get monetary assistance. Of the $350 billion disbursed by the federal government, $220 billion (63 percent) will go to state governments while the remaining $130 billion (37 percent) is reserved for metro cities, other municipalities, and county governments. Although there is an allocation for smaller governments (i.e., cities, towns, counties), states may pass on additional dollars to these communities depending on how each state government chooses to invest its respective aid monies.

For context, North Carolina is receiving roughly $8.7 billion (excluding capital projects). Of that amount, $5.3 billion is for state aid and $3.4 billion is for local aid spread across our cities, towns, and counties. A detailed breakdown of local and state ARP aid can be found here.

As local governments begin to consider where to make much-needed investments, communities hit the hardest and too often excluded should be engaged to ensure that dollars go to the greatest need. As found in a recent analysis by Resourceful Communities, BIPOC organizations were least likely to access support even though they represent trusted stakeholders in various communities and can connect underserved people with services and programming.

When deciding how to allocate aid monies, well-resourced stakeholders may seem to be making a larger impact because they are serving a larger number of constituents, have a more established network of partnerships locally and statewide, and have the means to institute an extensive data collection process — but it is important to recognize capacity limitations. In many instances, BIPOC organizations are overworked and lack the capacity needed to illustrate larger impacts, but they are indeed reaching community members in need of the most assistance and often are the only entities doing so. Local officials must take this into consideration.

It is clear that as communities move ahead, as, for instance, New Hanover County has already done with an initial framework, they must establish a process for residents’ input and make a commitment to ensuring that resources go to groups that were left out of previous aid. Helping those still on the front lines of harm can create more resilient communities in the long run.

Decision makers must also recognize that the American Rescue Plan is not the final solution. Even with local governments receiving aid, most aid is highly concentrated in densely populated and well-resourced areas (e.g., Raleigh and Charlotte) as opposed to the areas hardest hit by COVID-19. The fight is far from over, and more is to be done in the coming months.

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

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.