Commentary, NC Budget and Tax Center, Trump Administration

Donald Trump promised manufacturing and construction jobs. He didn’t deliver.

President Trump

The gap between what comes out of President Trump’s mouth and reality is often big enough to drive one of the Mack Trucks he so adores through.

Trump promised manufacturing and construction would blossom under his tutelage and has recently turned to claiming he’s delivering on that pledge. Problem is: Reality tells a decidedly different story.

North Carolina job growth in manufacturing and construction collapsed over the past few years. North Carolina construction employment in 2019 was essentially flat, and we lost nearly 2,000 manufacturing jobs last year.

It would be one thing if both industries were already roaring along at peak output, but neither has recovered to anything close to the levels of employment they provided before the Great Recession. The construction trades employ 33,000 fewer North Carolinians than before the recession, and our state has lost 62,000 manufacturing jobs over the same period of time. The scale of these middle-class job losses in the 13 years since the start of the recession is staggering. The combined decline in manufacturing and construction employment is larger than the total working population of cities like Fayetteville, Wilmington, or Cary.

The President did not single-handedly cause the collapse of manufacturing and construction job growth in North Carolina, but his policy record isn’t anything to write home about. President Trump couldn’t muster the leadership to pass his promised infrastructure initiative that could have boosted both manufacturing and construction employment. Not only has imposing tariffs on friends and adversaries alike failed to bring manufacturing back from overseas, Trump’s trade wars have hurt North Carolina manufacturers who export to other countries. It’s difficult to say precisely how much of the drop-off in manufacturing employment is directly due to the President’s trade conflicts, but his policies have certainly cut into North Carolina’s billions of dollars in exports.

However much of the responsibility he directly bears, both industries posted larger gains in 2014 and 2015 than during any year of the Trump presidency. For a president who claimed that only he could fix our upside-down economy, that’s a poor showing.

As outrageous as Trump’s promises were, the real tragedy is playing out in communities and living rooms across North Carolina. Many of the people who once made a good living in construction and manufacturing have lost the economic security they fought so hard to achieve.

The good-paying jobs being created in North Carolina today are highly concentrated in a few metropolitan areas and generally require advanced technical training in fields far removed from manufacturing and construction. As a result, many of the North Carolinians who used to earn enough to get by and save a bit for the future have been forced into low-wage jobs that don’t pay the bills.

Patrick McHugh is a senior policy analyst for the N.C. Justice Center’s Budget & Tax Center. Policy Watch is a project of the Justice Center. 

NC Budget and Tax Center

Expanding Medicaid is not just the right thing to do, it’s smart economics

As Governor Cooper pressures legislative leaders to join the overwhelming majority of states that have expanded Medicaid, a new report shows how much North Carolina’s economy stands to gain from going down that road.

Authored by researchers at George Washington University, the report updates an analysis originally conducted in 2014. This current iteration projects that Medicaid expansion could add more than 37,000 jobs in North Carolina by 2022 and boost economic activity by over $11 billion annually.

Expansion would bring billions a year in federal funds to provide lifesaving coverage to very low-income North Carolinians who currently don’t qualify for Medicaid. Even with the state kicking in a dime for every 90 cents in federal funds, expansion provides an incredibly good deal for North Carolina. By 2022, when Medicaid expansion could be fully phased-in, North Carolina stands to receive $4.7 billion in annual federal funding. That capital would support over 20,000 new jobs in the health care field, but would also create another 16,600 jobs in the broader economy as health care professionals spend their salaries on goods and services like housing, food, clothing, education, and recreation. Read more

NC Budget and Tax Center

NC Senate debates new corporate tax cuts; Data, graphs show why the approach isn’t working

With the Senate Finance Committee slated to approve another round of business tax cuts that will overwhelmingly benefit large, high net worth corporations, we’re sure to be treated to another round of economic myth-making. Proponents consistently promise cutting taxes will supercharge North Carolina’s economy but, years into the experiment, there’s still no evidence to support their bold predictions.

North Carolina’s economic track record over the last several years has been remarkably unremarkable, particularly when compared to our neighbors in the southeast. Job growth has roughly followed the national trend, and has actually been slower than some nearby state where taxes have remained steady over the last several years. Total non-farm employment in North Carolina has expanded by 10.9% since January of 2014 when the first round of tax cuts took effect, which falls shy of the 12.8% growth for Georgia, 12.6% expansion for South Carolina, and the regional average of 11.4% for the South Atlantic.

The story is even less encouraging when one looks beyond overall job growth and focuses on two industries that have been particularly vital to North Carolina’s economic prospects.

First, “professional and business services” has emerged as one of the most important sources of good-paying jobs, particularly in areas like the Research Triangle Park and Charlotte. While the sector has grown substantially in the last few years, North Carolina’s 14.7% growth since January 2014 has been well off the pace set by Georgia (17.4%) and South Carolina (18.0%).

Second, and even more distressingly for a state with a proud legacy of making things, manufacturing job growth in North Carolina since January 2014 has been roughly one half of what it has been in the two states to our immediate south. Given how reliant much of North Carolina is on manufacturing jobs, this lack of robust growth is particularly worrisome for many communities where few other industries offer comparable employment opportunities.

In spite of this evidence that tax cuts have failed to boost North Carolina’s economy, a virtually identical set of additional cuts was included in the House budget. It up to North Carolinians to demand less myth and more economic meat.

Dr. Patrick McHugh is a Senior Policy Analyst at the N.C. Budget & Tax Center.

NC Budget and Tax Center

Tax cuts have pitted capital needs against education, health, other vital services

North Carolina’s budgeting mechanism for servicing debt, paying to repair state property, and investing in new capital projects will change on July 1 with the implementation of the State Capital and Investment Fund (SCIF). Given that North Carolina has been underfunding repairs, renovations, and new capital projects for years, creating a pot of funds to address these needs that is separated from the rest of the General Fund does make a certain amount of sense.

The challenge, however, is that years of tax cuts have squeezed our ability to fund the needs of a growing state, so setting funds aside for capital projects at the outset of the budgeting process will create even fewer resources in other areas of the budget. The result is that our state is facing a growing gap between the revenue we need to keep up with providing basic services and with maintaining and building infrastructure to serve North Carolinians and the revenue that we collect.  This will only get worse in future years as the tax cuts continue to reduce revenue annually by at least $3.6 billion from what would have been collected under the tax code before the tax cuts began in 2013.

The SCIF creates a new dedicated pot of funds for these capital needs that is taken out of the General Fund before other appropriation decisions are made. The SCIF is funded statutorily with 4 percent of general fund revenues (projected to exceed $950 million for 2019-20 fiscal year), and 25 percent of the unreserved fund balance ($237.5 million in the upcoming fiscal year). Those funds will first be used to make $721 million in debt payments, with another $250 million devoted to repairing existing state facilities, and just north of $200 million for new capital projects.

Creating the SCIF has some merit as capital improvements and repairs are often the first things to get cut when budget writers don’t have enough revenue to go around, but a few bits of context are still important.

First, the scope of North Carolina’s capital needs far exceeds what the SCIF can meet in its current arrangement. North Carolina’s schools alone have over $8 billion in facility improvement needs, and that is only one area of capital needs that have been underfunded for years. Building and maintaining quality public facilities doesn’t come cheap, and the SCIF simply won’t generate enough funding to deliver what North Carolinians deserve.

Second, by setting aside debt and capital funds before the rest of the budgeting process takes place will make it even harder to meet all of the other needs of a growing state. While budget writers were in committee discussing the House’s proposal, thousands of educators were just outside demanding more funding for supplies, school nurses, teaching assistants, and a range of other vital educational needs that have gone wanting in recent years. And across areas of health, housing, and environment, documented needs for investments that would protect the public good have gone unfunded.

All of these challenges are rooted in years of decisions to give wealthy individuals and big corporations billions a year in tax cuts. Just this year alone, a scheduled reduction in the Corporate and Personal Income Tax rates drained another $900 million from the state’s coffers, funds that would have more than covered our existing debt payments without diverting support for everything else.

A final important note: At a time when revenue is already reduced, the move to solely propose funding capital projects through available revenue rather than looking to the potential for a state bond to take advantage of low interest rates is concerning.

As noted by some legislative leaders, this appears rooted more in fears of debt than in a practical consideration of what financing mechanisms would best allow the state to achieve its full set of priorities for our families and communities.

In the end, the SCIF is a cautionary tale. After years of lavishing tax cuts on the most prosperous North Carolinians, the legislature has backed itself into a corner where the only way to start addressing the need to repair existing facilities and build new ones is to take even more funding away from other services that are needed today.

NC Budget and Tax Center

Trump tax policy helped many of the biggest corporations completely avoid taxes in 2018

With last years’ tax returns now in, it is all the more evident how massive a gift the Trump Administration and Republicans in Congress gave corporate America in their 2017 package of tax cuts. Many of America’s wealthiest corporations received a huge windfall in 2018, even as most Americans face the prospect of declining public services and deepening public debt.

A recent report shows that 60 of the largest corporations managed to pay no corporate income taxes in 2018, and many of these companies actually received substantial tax rebates. A few notable examples of corporations who made off particularly well under the Trump tax cuts include:

  • Amazon: Had $11 billion in revenues from business in the United States and received $129 million in tax rebates.
  • Netflix: Paid no corporate taxes on over $850 million in U.S. income.
  • Chevron: Revenues from U.S. operations of approximately $4.5 billion and received $181 million in federal tax rebates.
  • Halliburton: Took in over $1 billion in U.S. revenues, and received a $19 million tax rebate

These companies managed to avoid taxation by exploiting a range of loopholes in the federal tax code that were either left untouched or actually expanded by the 2017 tax bill.

Capital-intensive companies like Chevron and Delta Airlines were able to slash their taxes using Accelerated Depreciation, a provision well known in corporate accounting circles but not widely understood beyond those circles, that allows companies to claim larger tax write-offs for the decreasing value of expensive equipment.

Amazon and Netflix were leaders in using stock option payments to their corporate executives to avoid millions in corporate taxes. Even though granting stock options does not directly hit companies’ revenues like salaries would, corporations can still claim the value of the options as an expense and thereby reduce their tax bill. Moreover, these options also allow wealthy executives to avoid paying the personal income tax rate on that income, instead paying the lower rate applied to capital gains.

A range of other companies were able to zero out their taxes in 2018 using tax credits for energy production, research and development, and other special treatment still littered throughout the federal tax code.

Instead of draining the swamp, the 2017 tax cuts only gave smart corporate attorneys more bog to explore. The result was predictable: Most working families and small businesses got peanuts (or saw their taxes go up) while many of the biggest corporations in the country avoided paying taxes altogether. Sooner or later we have get serious about getting large and profitable companies to pay their share, or we will all end up paying the bill for tax breaks that mostly benefit the most fortunate.