NC Budget and Tax Center

Days before teacher march, architects of slashing taxes defended cuts while providing no evidence of economic benefits

Senate President Pro Tem Phil Berger

Sen. Thom Tillis

A mere two days before thousands of teachers and parents arrive in Raleigh to voice their displeasure at the lack of investment in education, several architects of tax cuts enacted since 2013 (including former House Speaker and current U.S. Senator Thom Tillis and Senate President Pro Tem Phil Berger) defended their policies, often without acknowledging that their tax cuts are the central reason that we have under-invested in schools and communities for years. The event, hosted by the UNC Tax Center, brought together a group of elected leaders, scholars, and business people to discuss the impacts of tax cuts passed in North Carolina starting in 2013.

Elected leaders who slashed taxes largely did not address the harm of subsequent spending cuts. There was virtually no acknowledgement from the elected leaders who spearheaded the effort, that cutting taxes for wealthy taxpayers and profitable companies was the central reason that we have systematically under-invested in schools, roads, healthcare, digital infrastructure, and a host of other vital public needs since 2013. The question was raised by some business leaders, scholars, and audience members, but the elected leaders who bear the most responsibility for passing tax cuts largely avoided the harm that their policies have created.

No evidence presented that tax cuts boosted North Carolina’s economy. Absolutely no compelling evidence was presented that tax cuts have boosted North Carolina’s economy in a meaningful way. Scholars warned that state tax cuts often have very modest effects, even in the best cases, and that it is virtually impossible at present to isolate a unique effect in the North Carolina case.

Cutting corporate taxes more won’t help. Corporate executives and academic scholars largely agreed that cutting taxes on corporations doesn’t make sense right now. We’ve already reduced the corporate rate from 6.9 to 3 percent, and the rate is set to drop again to 2.5 percent in 2019. Both business people and scholars doubted that the additional cut would yield any economic benefits.

Tax cuts made inequality worse. The effect of recent tax cuts on inequality did not receive all that much attention in the discussion, but where it did come up, it was largely acknowledged that the tax cuts in North Carolina since 2013 have made inequality worse. Because the largest share of the benefits have gone to high income taxpayers, personal and corporate income tax cuts have shifted even more capital to the very wealthy. There was no counterpoint to the evidence presented that affluent taxpayers were the big winners.

Patrick McHugh is the Economic Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center, News

Is your community paying to enforce Trump’s immigration agenda? More communities saying “no”

While media attention often focuses on President Trump’s stream of insulting and divisive comments about immigration, less attention has been devoted to the administration’s ongoing effort to enlist local communities to carry out his agenda. The Trump administration wants to expand a program called “287g,” which effectively deputizes local law enforcement agents to act as agents of Immigration and Customs Enforcement (ICE).

These agreements can tear communities apart, and have potentially serious fiscal, economic, and legal risks. That is why many communities are looking to end existing 287g agreements or thinking twice before signing up to be the agents of Trump’s immigration agenda. For example, the primary elections on May 8th saw the incumbent sheriff in Mecklenburg, who reauthorized that county’s 287g program, go down to defeat.

The Trump administration did not invent the 287g program, but it clearly sees it as a tool for implementing its agenda. The administration has signed up over 45 new localities to enforce its immigration priorities since January 2017 and currently has agreements in place with six sheriff’s offices in North Carolina (Wake, Mecklenburg, Gaston, Cabarrus, Nash, and Henderson). Alamance County had its 287g agreement terminated due to allegations of discriminatory practices, but has subsequently applied to have it reinstated.

Beyond creating fear and fostering distrust, 287g agreements have far-reaching fiscal, economic, and legal implications for local communities.

Click HERE to receive updates on immigration enforcement issues

Large cost to local taxpayers

When local sheriffs’ offices sign 287g agreements, they are pledging to pay for a big part of the cost of doing immigration enforcement work. This even includes paying for travel and lodging for employees to receive the training required to participate in the program.

This is from the Wake County’s sheriff’s office 287g agreement: “The WSCO is responsible for the salaries and benefits, including overtime, of its personnel being trained or performing duties under this MOA… The WCSO will cover the costs of all WSCO personnel’s travel, housing, and per diem affiliated with the training required for participation in this MOA.”

The local resources that 287g agreements consume could be utilized for other vital public safety needs. When the sheriff in Harris County, Texas pulled out of its 287g agreement, the sheriff’s office was able to reassign ten deputies, and their $675,000 in salary costs to other local priorities.

Read more

NC Budget and Tax Center

Now we know how much North Carolina CEOs are paid compared to their employees

If you’ve wondered why wages for most working people remain stagnant during a period of record stock market values and corporate profits, a recent article in the Winston-Salem Journal provides some insight. The gap between what CEOs rake in and what the typical workers in their companies are paid has exploded since the 1970s, and new data shows how much of their companies’ success is being captured by corporate leaders.

Thanks to a relatively unheralded provision in the Dodd-Frank Act, corporations are now required to report how much more CEOs at individual companies are paid compared to their typical employee. This requirement sheds important light into the often murky waters of CEO compensation, and what emerges from the gloom is often shocking.

“Even though corporations have received criticism for multi-million-dollar executive payouts from rank-and-file employees, worker advocates and some shareholders, the compensation levels typically boiled the pot for just a few days….

“Analysts and economists say the new CEO pay ratio has the potential to make the issue more of a paycheck and dinner table conversation, or it could just provide another throw-up-your-hands, what-can-you-do round of frustration.”

Pay at our countries’ largest companies has not always been this lopsided. According to analysis by the Economic Policy Institute, the pay gap between CEOs and workers was 20-to-1 in 1960, rose to 89-to-1 by the late 1990s, and surged to 271-to-1 by 2016.

With many CEOs at the helm of companies based in North Carolina receiving hundreds, and in some cases more than a thousand, times what their typical workers receive, it’s small wonder that many working families can’t make ends meet. Hopefully, this newfound transparency will raise awareness of just how unbalanced compensation has become and will incite political and business leaders to take real action to ensure that everyone shares in the benefits of economic growth and quarterly profits.

Commentary, News

Amazon HQ2 could drive working people and retirees out of their homes

Source: NC Housing Coalition

When Amazon announced that it is searching for a city to host a second headquarters, cities across the country lunged at the opportunity. Media releases, slick marketing pieces, and even some goofy social media stunts were soon rolling out of cities from Boston to Los Angeles, including a few communities here in North Carolina. Lost in the initial rush to lure a potentially multi-billion dollar project, is the very real risk that the deal could deepen existing economic problems, not fix them, and could create even more distance between affluent white color workers and the rest of the Research Triangle.

While many workers and retirees in Raleigh would see little or no direct benefit from Amazon locating here, the costs could be very real. A new analysis by the real estate search company Zillow estimates that the median rent could increase by more than $300 a year if Amazon locates in the Raleigh. With gentrification and increasing housing costs already driving families from their homes in many parts of Raleigh, this new hit could be devastating. According to the NC Housing Coalition, over 105,000 households (28 percent of all households) in Wake County already struggle to afford a roof over their heads, so accelerating the rise of housing prices could force even more families, working people, and retirees to move out of their neighborhoods.

Amazon often touts the highly-paid jobs that it will create, but history shows that a huge share of those positions would go to people who don’t yet live in North Carolina. Amazon fills its best and most lucrative jobs with talent from around the world, so there’s no guarantee that it will create many opportunities for communities and families where the need is greatest. That means that most working and retired people in Raleigh could face escalating housing costs but incomes that are not growing apace, eventually squeezing them out of communities they may have known for decades, or generations.

Wherever Amazon lands, that community better be ready to counteract this economic pressure that can transform working communities into exclusive affluent enclaves. The process has already played out in San Francisco and Seattle and is starting to happen in a few places in North Carolina, the Research Triangle being the most advanced case. If Amazon partners with local communities to create inclusive and sustainable development, great, but if the company is just looking for a hand-out while fueling the winds of gentrification, we can do better.

Commentary, NC Budget and Tax Center

Digital divide in NC is a classic market failure, and requires proactive solutions

If you live in an affluent neighborhood in the Research Triangle, Charlotte, or a handful of other metropolitan areas in North Carolina, chances are you’ve seen crews working roadsides over the last year installing fiber optic cable. Maybe you’ve already signed up to boost your internet connectivity and know what a revelation it can be to have a world of people, experience, and commerce at your fingertips.

On the other hand, if you live in a community with little or no access to broadband, the story is quite different. Maybe you’ve sat in a library parking lot while your children do homework, or struggled to keep up with business competitors, or raged while a video of your grandchild’s first steps refused to load.

A new report from the North Carolina League of Municipalities documents the dire need to expand broadband access across the state, and lays out some of the steps we can take to make that happen.

“One of the primary functions of government is to build the infrastructure networks people need to sustain their lives and livelihoods. Today, high speed broadband joins transportation, electric, water, and natural gas networks as a component of basic infrastructure services that Americans expect to be provided”

(For anyone interested in joining the conversation about broadband solutions in North Carolina, an upcoming event on April 20th at the NC Rural Center provides a great opportunity).

The digital divide in North Carolina is a classic market failure. While private internet service providers rush to capture lucrative urban markets, they do not always invest in small towns and rural communities. This lack of investment isn’t a moral failing on the part of big telecom companies, they have a fiduciary obligation to shareholders to maximize return on investment and it is often more expensive to serve sparsely populated communities. Still, the result is that many North Carolina communities are falling farther and farther behind their urban neighbors. This is precisely the kind of situation that requires public investment and public-private partnerships to overcome the failure of the open market to deliver a necessary public good, as we have done with public education, roads, airports, parks, and other vital public needs that are often under-provided by the private market.

Given the growing economic and social importance of reliable broadband, its time for state and local governments in North Carolina to develop solutions that make sure no community is left behind.