Commentary, NC Budget and Tax Center

Temporary economic slowdown or signs of worse to come?

The state and national economies continued to grow in May, but there are signs that economic momentum may be waning. Job growth through the first five months of 2017 was slower than in same period for either of the last two years, North Carolina has largely stopped making progress in bringing people back into the labor market, and our unemployment rate remains higher than the national average.

It’s too early to tell whether we are looking at a temporary blip or a major inflection point, but these signs are not encouraging. Given where the labor market is and where it could be headed, it is crucial that we bolster the systems such as Unemployment Insurance that protect people when the economy takes a downturn.

Here are a few of the indicators that point to a dip in economic growth:

Job growth has slowed in recent months: Year-over-year job growth in North Carolina averaged 2.5 percent for the first five months of 2017, below the 2.9 and 2.7 percent rates for 2016 and 2015, respectively. This slowdown underscores the need to ensure that our Unemployment Insurance system is prepared if the economy takes a turn for the worse. The U.S. has seen an unprecedented run of consecutive months of job growth, yet as we see weakening in the labor market, we must ensure we are not caught unprepared when the next economic downturn takes hold.

North Carolina’s unemployment rate is still above the national average: North Carolina’s headline unemployment rate remains below 5 percent, which still translates into over 220,000 individuals looking for a job and a higher rate of unemployment than the national average. In fact, North Carolina’s unemployment rate has been higher than the national average for the last six months, and has only been at or below the national rate for four months out of the last two years.

We have stopped making progress in bringing people back into the labor market: One of the most concerning indicators in recent months has been the lack of growth in labor force participation rate, or the share of North Carolinians who are either employed or actively looking for work. A lack of job opportunities drove many North Carolinians out of the job market during the Great Recession and although the state and nation had been making progress in bringing people back, that momentum has stalled over the last year. In May, 61.8 percent of North Carolinians were working or looking for a job, exactly where we stood in May of 2016. Given that we have never returned to pre-recession levels of labor force participation, this is a clear sign that recovery in North Carolina remains incomplete.

 

NC Budget and Tax Center

House wants to give retirees a bonus, Senate wants to cut benefits for future retirees

Stark differences exist between how the budgets passed by the North Carolina House and Senate would treat retired public servants. While the House wants to provide a one-time bump in pension payments, the Senate contemplates eliminating retiree healthcare coverage for future state employees. The House proposal is a modest step in the right direction and the Senate’s vision would make life harder for the people who to teach our children, protect our communities, and deliver myriad other vital public services.

The House budget moves to provide a one-time supplement to retired state workers’ pension payments. For years, pension payments have not been adjusted to reflect inflation, leaving retired state workers struggling to cover growing expenses. As a one-time payment, the House proposal is not a true cost-of-living adjustment, but it at least recognizes the financial pinch that stagnant pensions have imposed on state employees and devotes some resources to addressing the problem.

In contrast, the Senate budget would strip retiree healthcare coverage for all state employees who are hired after July 1, 2018. This provision echoes a bill heard earlier this session (that has not passed either chamber) that would eliminate pensions for state employees. Proponents of cutting retirees healthcare and pension benefits often claim that we simply can’t afford the expense, but that’s not telling the whole story. Read more

Commentary, NC Budget and Tax Center

Amazon and other merchants could get a big tax break from House budget

A provision way down on page 351 of the House Budget could deliver big tax breaks to distribution companies like Amazon. It is difficult to say how many companies this provision would benefit, or how much revenue state and local governments stand to lose, but these types of special tax deals often cost more and deliver less than promised.

The provision (SECTION 38.9) would exempt “sales of equipment, or an accessory, an attachment, or a repair part for equipment” to “a large fulfillment center” from North Carolina sales tax. To qualify, a distributor must invest at least $100 million and create 400 jobs within five years.

As a general rule, building economic incentives into the tax code is risky business. Once written into tax law, these types of provisions can turn out to be much more expensive than originally thought and can be very difficult to eliminate, even if they aren’t delivering a substantial return on investment. There has not been time to fully vet the current House language, but it is certainly possible that smart accountants and fancy lawyers can find ways to bend these provisions beyond their initial purpose. Read more

Commentary, NC Budget and Tax Center

Learn the facts that proponents of more tax cuts often ignore

As the Senate passed yet another round of tax cuts (which would largely go to wealthy people and companies), proponents tried to claim that past tax slashing has fixed our economic wagon. Not so fast. Hard numbers and lived experience tell us that several years of tax cuts have not addressed North Carolina’s most pressing economic problems.

A job does not guarantee escape from poverty or that people can afford the basic necessities.

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2018 Fiscal Year State Budget, NC Budget and Tax Center

Tip-toeing in the right direction: Gov. Cooper’s budget expands economic, cultural & environmental investments

Logo for Natural and Economic Resources BudgetGovernor Cooper’s first budget for Natural and Economic Resources makes a number of moves in the right direction, albeit mostly modest steps more than ambitious strides. After years of giving away big tax breaks to wealthy people and profitable corporations, there is no funding for truly bold initiatives. That said, several specific provisions in the Governor’s budget seek to fill some of the holes left by years of neglect and to extend some important economic development initiatives.

  1. Expanding broadband to under-served households. The Governor’s budget would set aside $20 million in the 2017-18 fiscal year for grants and planning to bring broadband connectivity to under-served communities. $14.5 million would create a grant program to support local governments, telephone cooperatives, and electrical cooperatives that are extending broadband connectivity to currently unserved communities. The remainder of the funds would support planning and implementation activities at the state level. This level of investment would come nowhere near addressing the lack of reliable and high-speed internet across much of North Carolina, but it could move us in the right direction.

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