New report confirms what advocates have been saying: Anti-poverty programs work

[Editor’s note: The following is from a new “BTC Brief” entitled “Public Poilcy Must Tackle Poverty” from North Carolina Budget & Tax Center Policy Advocate Heba Atwa and BTC Director Alexandra Sirota. Its central finding: “Evidence shows that programs that provide food and housing assistance and tax credits do help North Carolinians move out of poverty.”]

NC poverty is cut in half through government programs

In estimates of the average effect of programs like SNAP (Supplemental Nutrition Assistance Program), tax credits, and TANF (Temporary Assistance for Needy Families) from 2013-2017, researchers at the Center on Budget & Policy Priorities found that 1.5 million North Carolinians were supported in their movement out of poverty by government assistance. Nearly 300,000 North Carolinians, including 130,000 children, were lifted out of poverty by the SNAP program alone.

The result is that the state’s poverty rate overall falls from 28 percent to 13 percent after taking government programs into account (See Figure 1).

The power of these anti-poverty programs, however, is not equally felt. The latest data show that white North Carolinians are more likely to experience a reduction in poverty than Black or Latinx North Carolinians (See Figure 2). This inequitable outcome is the result of policy choices within programs that block people of color from securing the same benefits as white people and block progress on bringing down overall poverty rates in the state. The higher poverty rates experienced by Black and Latinx North Carolinians should drive policymakers to ensure that policies and programs are creating the greatest declines for these groups.

North Carolina can make greater progress in reducing poverty

Policy choices matter when it comes to the effectiveness of food assistance, housing vouchers, cash assistance, and tax credits in making sure that people have the basics they need. North Carolina can look at broad areas of policy design in each of these programs to ensure that the state is maximizing its tools in the fight against poverty.

Doing so must begin with an assessment of the racial-equity impact of policy choices within each of these programs to ensure that the state’s systems aren’t harming the opportunity of North Carolinians based on who they are or where they live.

  • Family cap policies in TANF limit the ability of families to receive adequate income support for each child in their family. Researchers have found that receipt of cash assistance has no impact on child-bearing decisions.
  • Drug felony bans in TANF and SNAP reinforce the disproportionate enforcement activities in communities of color. Researchers have found that income and food assistance is essential to the stability and successful re-entry of people back into communities.

In the coming year, it is crucial that NC policymakers focus on strengthening the state’s anti-poverty programs.

Remove barriers that disproportionately hurt North Carolinians of color

  • Prohibition against time-limit waivers for ABAWD: The North Carolina legislature has banned the state from seeking special permission from the USDA, which results in adults with no children or disabilities being denied food assistance if they cannot find employment or an approved vocational training program for 20 hours a week, regardless of the economic conditions in their community.
  • SNAP and TANF felony ban: North Carolina is one of a dwindling number of states that restricts access to both cash and food assistance for people who have been convicted of specific drug-related felonies. Preventing people from accessing the support they need immediately after serving their sentences as they transition to life after incarceration does not prevent crime or reduce recidivism, and in fact, may increase re-arrest rates.
  • The TANF family cap denies a benefit increase to families who have an additional child while receiving TANF. The family cap provision aims to control reproductive choices and makes the racist assumption that women would choose to have a child to increase TANF benefits by as little as $26 a month. Notably, the policy has no impact on birth rates.

Support systemic solutions to poverty that assist North Carolinians on the path to economic security

  • Tax credits for working families: Reestablishing a generous and fully refundable state-level Earned Income Tax Credit and adequately investing in IRS Volunteer Income Tax Assistance sites around the state would ensure that all eligible families are claiming the family tax credits, which are known to improve health and well-being outcomes for both parents and children and to increase the future economic outcomes of children in families that claim the credit.
  • Investment in early childhood education.

Today’s enhanced monthly Child Tax Credit payment could be the last that families receive unless Congress acts to extend this successful policy

Today marks the sixth round of Child Tax Credit (CTC) payments going out to an estimated 1.2 million families in North Carolina, supporting the well-being of nearly two million children in the state. The temporary improvements to the CTC under the American Rescue Plan increased funding available to families, expanded eligibility by making the credit fully refundable, and changed the schedule for distributing funds so that half of the credit is distributed through monthly payments that began on July 15. But unless Congress acts to pass the Build Back Better legislation before the end of the year, December 15 marks the final day that families will receive monthly payments, and the gains that families have seen from the new CTC will be lost.  

Recent research from the Center on Poverty & Social Policy at Columbia University estimates that the October CTC payment kept 3.6 million children across the country from poverty that month. These reductions in poverty translate to long-term benefits in kid’s educational attainment, health as adults, and future earnings. All children, white, Black, and Brown see big benefits from the credit, and the improved CTC is also helping to narrow racial inequities in child poverty. Lower child poverty means real improvements in children’s well-being, like living in safe and stable housing and having enough food to eat. The most common use of the CTC for North Carolina families is to purchase food, and this summer’s payments drove down food insecurity among families that received them. Monthly payments of the CTC are especially important for smoothing family incomes and allowing them to meet monthly expenses. 

Source: Center on Budget and Policy Priorities

Recent analysis from the Center on Budget and Policy Priorities lifts up the state-level gains that will be lost if Congress does not extend the enhanced CTC. 

In North Carolina: 

  • 90% of children experienced an increase in benefits.  
  • Among families with low incomes under $35,000: 
    • 87% spent CTC payments on basic needs, including housing costs, food, utility bills, and clothing. 
    • 93% spent CTC payments on basic needs and/or education costs like school supplies, tuition, or tutoring. 
  • 306,000 children were lifted out of deep poverty or above the poverty line.  

Now is the time to keep making progress towards giving every child the opportunity to thrive in North Carolina and across the country. Poverty is a policy choice and the expanded CTC has shown that our legislators can make the choice to tackle child poverty head on. Now they must pass the Build Back Better bill and extend this successful policy.    

Logan Rockefeller Harris is a Senior Policy Analyst at the N.C. Budget & Tax Center.

Three numbers that illustrate the folly of North Carolina’s latest austerity budget

North Carolina’s final budget includes deep personal income tax cuts and elimination of the corporate income tax over the next 10 years that will deepen hardship and prolong the recovery rather than supporting people and their well-being.

Sadly, rather than invest the state’s available billions in meeting basic near- and long-term needs, lawmakers chose to rely on federal funds to funnel temporary relief to those hit hard by the pandemic, while holding back from sustained investments in housing, health care, and education.

Despite huge structural needs and inequities exposed by COVID-19, lawmakers on both sides of the aisle have renewed the state’s commitment to the failed trickle-down approach of the status quo.

By once again choosing tax cuts over our collective well-being, elected leaders have put their faith in the wealthy few and out-of-state corporations, hoping they will somehow save the day and lay the groundwork for an economically prosperous and resilient state.

The record shows that this promise is unlikely to materialize. Since North Carolina began dramatically cutting income taxes in 2013, it has not fared better than any of its neighbors.

The state could provide the jobs and growth needed by investing in its homegrown potential and its own people by ensuring the rules of the game work in favor of average households. Instead, the new budget will widen economic inequality, hinder employment equity, and worsen our state’s overall economic outcomes.

Meanwhile, the revenue that will be lost from sending tax breaks to the wealthy and profitable corporations will block the state from becoming more resilient in the future.

Here are three numbers that help illustrate these hard truths:

  • We will lose 20 percent of General Fund tax revenue, or $8 billion over the next 10 years. This money could help ensure that schoolchildren can receive a sound basic education, and that their families have a shot at obtaining health care, decent and affordable housing, and basic protections against COVID-19 in every workplace. This is a steeper revenue reduction than experienced in any of the recent economic downturns in North Carolina and an artificial one—created by policy choices that will deliver worse outcomes. It builds on the reductions already locked in by the 2013 income tax changes that have decimated public health infrastructure, resulted in lower wages for public employees, and limited progress in addressing the affordable housing crisis.

  • $10 billion is a conservative estimate of the gap between available revenue and required expenditures that future policymakers will face when the tax cuts are in full effect in FY ’30. This figure takes into account the state’s constitutional requirement to fund a sound, basic education and the need to keep up current service levels in the face of rising costs and a growing population. The actual number will likely be even higher. That we don’t know what will be required to protect people’s health and well-being and adapt to a changing employment and technological landscape a decade from now makes this figure even more worrisome.

  • 25 percent is the astounding state sales tax rate that would be required to fill the massive new hole caused by these cuts. To be clear, this would be a disastrous option that would shift the state’s tax load even more dramatically onto middle- and low-income taxpayers than it is already. The poorest 20 percent of North Carolinians would see their state and tax contributions as a share of income increase by more than 3 percent—adding to an already upside-down tax code that asks increasingly less from millionaires. Sadly, however, based on the trend of protecting the wealthy and powerful few, it seems the most likely choice if the option of raising new revenue to meet future needs is ever again placed on the policy table. The alternative would be reducing services in communities or shifting the responsibility to local governments.

It isn’t inevitable that North Carolina policymakers on both sides of the aisle had to choose these deep income tax cuts.

There is a combination of policy choices that put people first and ask the wealthy and corporations to pay what they owe. Such policies would deliver a better outcome for all North Carolinians and put us on stronger economic footing for the future.

The consequences of this new budget will ripple through our everyday lives for years to come, and North Carolina will fall even further behind in securing the well-being of people and the economy.

Alexandra Sirota is the director of the N.C. Budget & Tax Center.

Eliminating corporate income taxes will make billionaires richer, hurt NC

When North Carolina legislators had a chance to address the rapidly increasing economic inequality of the past 30 years, they ignored the needs of workers and the state and instead passed harmful tax cuts. Instead of supporting low-income households or making sure large corporations pay what they owe, the 2021-2023 budget slashes the corporate income tax (CIT), a move that disproportionately benefits wealthy, out-of-state executives and shareholders.

When a company gets a tax break and so turns a larger profit, the primary result is a higher stock value – not more jobs or higher wages for average people. This money goes straight into the pockets of already-ultra-wealthy executives, who own stock in overwhelmingly disproportionate amounts compared to the average American.

The myth that shareholders then pass these gains on to their workers has been touted since the 1980s, but the promised benefit for average workers has never materialized. When North Carolina passed tax cuts in 2013, the state’s personal income growth rate dropped in comparison to neighboring states. In 2017, when the federal government passed another round of tax cuts, fewer than 5% of workers saw bonuses or raises tied to the change.

Not only will eliminating the CIT in the state budget fail to boost workers’ incomes, but much of the corporate savings from the tax break will vanish from the local economy altogether. Estimates show that over 80% of this break will go to out-of-state shareholders. Of the small number of beneficiaries in North Carolina, almost 70 percent of the tax cut will go to the richest 20% of taxpayers. The bottom 20% of North Carolinians will see only 2% of these tax changes.

These cuts will cost the state nearly $1 billion, money that could ensure equality-boosting programs like child care, a sound education for every child, and other health and income supports that make sure families are safe, secure and well.

Additionally, this policy choice directly fuels a dangerous trend that has exploded in the past 30 years: the growth of the billionaire class. In 1990, there were only 66 billionaires in the country, and the wealthiest among them was only worth $5.6 billion. Today, there are more than 600. Elon Musk, the richest man in the world, crossed the $300 billion net worth threshold in early November.

The most dramatic change, however, has been in the past year. Since the start of the pandemic, when over 20 million jobs were lost in a few short months, massive stock market gains have resulted in billionaires adding over a trillion dollars to their collective net worth. Eliminating the corporate income tax boosts this disparity.

By buying into the fable of tax cuts, legislators are costing the state crucial funds and hurting the average North Carolinian.

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

Final budget cuts North Carolinians’ priorities while keeping them out of the process

The conference budget released by the NC General Assembly on Monday night puts business interests and politics ahead of people while bringing North Carolina to a new low in terms of spending as a share the economy (with the exception of the prior year, FY 2020-2021, when prior state spending commitments were maintained and no legislative budget was enacted).

This plan — which was crafted by General Assembly leadership and legislators appointed to the conference committee with input from the Governor’s office, all behind closed doors — will lock in changes to the tax code, including elimination of the corporate income tax and reduction of the personal income tax rate, that will permanently reduce revenue that the state has available to pay for every area of the budget. It will overwhelmingly benefit the wealthiest North Carolinians as well as out-of-state corporations. The plan also kicks the can down the road yet again for Medicaid expansion, instead creating a legislative study committee on the topic, and flies in the face of more than two decades of litigation urging the state to comply with the state constitution and fund the baseline funding to provide each child with a sound, basic education.

The conference budget outlines proposed state spending through the remainder of the biennium, which began 5 months ago in July. The budget will commit the state to spending marginally above the arbitrary spending limits that House and Senate leadership agreed to at the outset of the budget process – spending $25.9 billion instead of the $25.7 billion previously agreed upon in June.

Once enacted, this conference budget will become the final budget that the state will operate on for two years, but with additional changes to be considered next year for the second year of the budget.

A new low point for state spending based on enacted budgets

The conference budget outlines how the General Assembly proposes to spend $25.9 billion in Fiscal Year (FY) 2021-2022 and $27.0 billion in FY 2022-2023 in General Funds. Similar to the House and Senate proposed budgets earlier this year, the conference budget will bring North Carolina’s investments to a 45-year low of 4.59 percent of the state’s economy in the first year and 4.60 percent in the second year. The only exception is in FY 2020-2021, which was the second year of operating on a continuation budget plus piecemeal budgets. This budget will continue operating the state on funding levels that fall $7 billion short of the 45-year average spending as a share of the economy (as represented by the dotted blue line in the chart).

Major tax changes ensure even greater austerity in the future

As first seen in the Senate plan released in June, legislative leaders and the Governor have agreed to eliminating the corporate income tax, paid by corporations on their profits and thereby largely benefiting out-of-state corporations, by the end of the decade. The final budget will also reduce the personal income tax rate, which will provide the greatest benefit to the wealthiest North Carolinians because of its flat structure.

This permanent upheaval of the state’s tax code will eliminate $8 billion in state revenue annually once fully implemented, ensuring that the state will not only fail to keep up with what people need but also will have to make cuts across areas currently funded by the budget. Read more