State lawmakers recommit to failed austerity despite ongoing pandemic, documented hardship

For months, the state’s legislative leaders have been negotiating the fate of North Carolinians and our shared future behind closed doors as they decide on a total spending figure for the biennial state budget.

Yesterday, they reached a decision to maintain their status quo approach, despite unprecedented hardship for North Carolinians. The arbitrary spending amount announced by House and Senate leaders — $25.7 billion in 2021-2022 and $26.7 billion in 2022-2023 — will continue the now decade-long trend of austerity budgeting in which state infrastructure, services, and publicly supported programs cannot adequately respond to long-term challenges or meet the needs of a growing state.

The recent practice of “pre-conferencing” proposed spending levels across the chambers is not a requirement of the process. It is a symptom of larger dysfunction that has plagued North Carolina’s state budget process. The tradition of backward budgeting doesn’t serve our state’s best interests. In backward budgeting, chambers agree on an arbitrary spending cap, often prioritizing tax cuts for the wealthy and profitable corporations, and then dollars are allocated based on what remains.  Our leaders set North Carolinians up for failure before the state budget process has even begun in the public realm.

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Stock wealth boomed during pandemic for wealthiest 1%

For people who derive most of their wealth from stock equity, it has been a very good financial year. In turn, massive stock market gains in the middle of a global pandemic have widened inequality along both wealth and racial lines.

Although the effects of the COVID-19 pandemic on job loss and wage fluctuation have been felt personally by many North Carolinians, the pandemic’s effect on company stock ownership may be less obvious to the average resident. This is largely because those in the top 1 percent of the wealth index own more than half of all corporate equity and mutual fund shares in the United States, whereas the bottom 50 percent own less than 1 percent. Despite this, changes in share value during 2020 have had a significant impact on economic inequality.

Stock and mutual fund wealth fell off by roughly 23 percent during the first quarter of 2020 when the stock market was first feeling the effects of COVID-19. However, by the end of 2020, equity ownership had not only returned to pre-pandemic levels, it had also surpassed them by over 17 percent. In the last fiscal quarter before the pandemic (Q4:2019), the top 1 percent held $15.10 trillion in stock and mutual funds, which had ballooned to nearly $17.8 trillion by the end of 2020. Last year, the richest 1 percent in the U.S. acquired $2.7 trillion in stock and mutual fund wealth while the poorest half of Americans saw less than $0.03 trillion in this kind of equity wealth growth. A typical household in the top 1 percent amassed around 4,500 times more new wealth in stock and mutual fund growth during 2020 than the average household in the bottom 50 percent.

Barriers to access to stock ownership mean COVID-19 also widened the racial disparity in equity wealth. Black people own only 1 percent of corporate equity and mutual fund shares, while an overwhelming 89 percent of shares are owned by white people. As a result, the growth of the stock market over the last year has exacerbated the pre-existing economic inequality between Black and white workers, further concentrating wealth in a small number of rich bank accounts.

Emma Cohn is an intern at the N.C. Budget & Tax Center.

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.

New jobs numbers: Big problems plague NC’s uneven economic recovery

Expert says NC must do more to train, connect and support workers

N.C. Budget and Tax Center economist Patrick McHugh reports today that local labor market number for April show an economic recovery for North Carolina that remains very much “a work in progress.”

NC Budget & Tax Center Research Manager Patrick McHugh

McHugh says that while businesses in some industries have struggled with hiring in recent weeks, many of the people who lost jobs due to the COVID-19 pandemic still can’t find work. what’s more, many of the people who were paid the lowest wages before COVID-19 suffered the worst employment losses and continue to need significant support to find new jobs.

“There are more people looking for work in most North Carolina communities than before COVID-19, so we need to really focus on knocking down the barriers keeping people from accessing jobs,” said McHugh in a news release. “Some of the challenges that businesses are having in finding employees are rooted in the financial barriers people face in getting back into the labor market, and a lot of people need supports like access to child care or training for the new jobs that are being created.”

This is from from McHugh’s analysis:

Economic challenges facing North Carolina include: 

  • More people looking for work in nearly every North Carolina community: Businesses’ challenges in finding employees are not rooted in a lack of people wanting to work. Figures show more residents were trying to find work in April 2021 than before COVID-19 in 88 of 100 North Carolina counties, every major metropolitan area, and most smaller cities.
  • Fewer people connected to the labor market in almost every community: The number of people working or looking for work is lower than it was before COVID-19 in all but three of North Carolina’s 100 counties. In addition to there not being enough jobs for everyone who wants to work, this fact shows a lot of North Carolinians face barriers in getting reemployed. These obstacles, which are often the most pronounced for women and people of color, threaten to create financial harm that could extend well beyond the end of the pandemic.
  • Risk of deepening economic divides between largest cities and some other parts of the state: The recovery is further along in some of North Carolina’s largest metropolitan areas such as Charlotte and Raleigh, but many other parts of the state are still much farther from full recovery. Metropolitan areas that have experienced the worst declines compared to February 2020 include Goldsboro (-6.5%), Asheville (-6.1%), and Greensboro-High Point (-5.5%). By comparison, Raleigh is only (2.1%) below pre-COVID employment levels.

  • COVID-19 has either erased all employment gains or deepened losses since the start of the Great Recession in a majority of counties: In North Carolina, 57 of 100 counties had fewer people working in April 2021 than before the Great Recession. Many parts of the state had never recovered all of the jobs that disappeared in the Great Recession, so the losses during COVID-19 are further compounding a long-term problem.

Click here to see county-by-county employment changes since the start of the COVID-19 recession and here to see them since the start of the Great Recession.

(Note: the Budget & Tax Center is a project of the NC Justice Center — parent organization of NC Policy Watch).

A costly tax cut during the pandemic is bad for NC

When North Carolinians with earned income below $60,000 have yet to see employment return to pre-COVID-19 levels — and while those with higher income have fully recovered and corporate profits are soaring — North Carolina needs to invest in supporting a more just recovery and to target any tax cuts to those hardest hit by the pandemic.

Instead, Senate leaders released their plan for changing the tax code. They are flouting the no-net-tax-cut provision in the American Rescue Plan. They are potentially jeopardizing Fiscal Recovery Funds for North Carolina. And they’re doubling down on a march toward austerity that has made us less safe and less resilient in the face of significant public health and economic challenges.

The proposed committee substitute, which had already passed the House as House Bill 334 as a more modest alignment to federal tax treatment of Payroll Protection Program loans, is now an omnibus tax bill that aligns with the worst theories about how to help the economy and support people’s well-being.

  • It targets tax cuts to the top. The combined personal and corporate income tax changes will deliver 56%of the tax cuts in the bill to the top 20% of North Carolina taxpayers.
  • It fails to reach those struggling to get ahead in the economy. The bottom 60% of taxpayers would receive just 23% of the net tax cuts. The continued rejection of working family tax credits by legislative leaders leaves out many people across the state who pay taxes but don’t earn enough to pay income taxes or file taxes.
  • It emphasizes out-of-state, well-connected corporations and shareholders over local businesses and working people. The corporate tax changes alone will primarily benefit out-of-state corporations who currently pay taxes on profits that are determined based on only sales in the state. Research, including by the Congressional Budget Office, has pointed to the fact that owners of stock and other capital ultimately pay corporate taxes, and an estimated 90% of the tax cut from elimination of the corporate income tax would flow out of state.
  • It makes no long-term plan for supporting small businesses and establishing a foundation for home-grown solutions to our economic challenges. The proposed grant program with American Rescue Plan would reach only those already in receipt of state and federal grants, leaving out many of the Black-owned and immigrant-owned businesses that were less connected to the financial institutions providing access to immediate economic support. Furthermore, because the revenue losses will undermine the ability of the state to invest in education, targeted community economic development, and critical quality of life measures, state leaders are hoping that outside help will continue to sustain us.

Tax cuts are not the remedy for what is ailing North Carolina’s economy.  Tax cuts don’t build affordable housing, tax cuts don’t put food on the table, and tax cuts don’t create jobs. Read more