New report: NC tax policy promotes racial inequities in numerous ways

A new report authored by Alexandra Sirota and Leila Pedersen of the North Carolina Budget & Tax Center analyzes who pays taxes in North Carolina and the ways in which our current tax code directly — and via the investments it supports — impacts Black, Indigenous, Latinx, and white residents.

Its unsurprising conclusion: North Carolina is not measuring up well. This is from the introduction to “State tax policy is not race neutral”:

The COVID-19 crisis has made clear that communities can experience the same events with disparate impacts along the lines of race, ethnicity, and income. Black, Indigenous, and Latinx communities and people with low incomes have been hit hard by the virus; these North Carolinians continue to experience higher death rates, more workplace safety risks, higher job losses, and greater income losses.

The health and economic disparities emerging from the pandemic are a cumulative result of inequities and barriers created by policy choices and a history of racism, bias, and discrimination. Policies and public institutions that limit access to education, quality jobs, and intergenerational wealth for communities of color continue to do harm and fuel racial and economic inequities today.

North Carolina’s tax code and budget are wrought with such policy choices, which can result in racist outcome that worsen barriers to well-being for people and communities of color, according to new data from the Institute on Taxation and Economic Policy (ITEP). The greater tax load carried by Black, Indigenous, and Latinx residents has been exacerbated by state tax policy choices made in 2013, which were layered on historic policy choices that set up a tax code structure that already asked for inequitable contributions from taxpayers of color. By analyzing the impact these policy choices have on different racial and ethnic groups, policymakers could gain clearer insight into the choices that are shaping (and harming) our lives and could make policy choices that advance more equitable outcomes.

This report analyzes the outcomes of who pays taxes in North Carolina and the ways in which our current tax code directly — and via the investments it supports — impacts Black, Indigenous, Latinx, and white residents. Each year, the foundation of our policymaking is often whether and how we will raise collective resources to advance our state’s well-being.

Tax policy, when designed with equity in mind, can support racial justice and sustainable economic growth that delivers broad-based benefits to all. The pandemic has made clear that North Carolina lawmakers can and must make intentional and sound policy choices that respond to the systemic causes of COVID-19’s disparities.

Click here to explore the report.

Forced ICE cooperation bill would shift costs to already hard-hit local governments

A proposal moving through the North Carolina General Assembly would further shift costs to local governments to score ideological points with those seeking stricter immigration enforcement even as the evidence shows that forced cooperation with ICE doesn’t make communities safer.  

Senate Bill 101, which passed the Senate last week, is modeled after bills introduced in previous sessions, with only some modifications that won’t protect local governments from the likelihood of lawsuits, nor reduce the pressure on local budgets.  

In 2019, the Budget & Tax Center analyzed then House Bill 370 to assess the impact on local budgets of forced ICE cooperation. The cumulative cost of ICE cooperation over a decade at that time was estimated at nearly $82 million. Under a proposal that would seek to increase the number of detainers issued, a forward-looking estimate of what local governments could expect is likely higher.  

That is even more so the case during COVID-19.    

Forced cooperation with ICE raises grave concerns about overcrowding and pushes against recommendation to reduce jail admissions during a pandemic. Analysis of local jail populations by the UNC School of Government found that in 2019, 41 percent of jails exceed capacity in one month, while 56 percent exceed 90 percent of jail capacity. National research has found that many people are held in jail pre-trial and that increasing jail populations are in part a result of agreements that local jails make with federal and state agencies. During COVID-19, public health and criminal justice experts have recommended reducing jail admissions because they have been documented to spread infectious diseases. Yet forcing cooperation with federal immigration agencies would increase the number of people entering local jails and could impact the global fight to end the pandemic. ICE has been connected to spreading the coronavirus, not just in the United States but across the globe.  

COVID-19 raises the costs of holding a person on an ICE detainer.  The costs of holding someone in jail have been underestimated in normal times and are likely to be much higher during the pandemic. Direct health care costs, along with the cost of staffing, maintaining social distancing and implementing other CDC guidelines, cost taxpayers.  These costs could, in part, be covered by state and federal dollars but Senate Bill 101 makes no provision for covering additional costs that would be incurred for holding someone for ICE.    

County budgets have been hit hard by the pandemic. While the full impact on the upcoming fiscal year budget is not entirely clear, a number of counties have had to reduce services because of revenue hits to fees and other revenue sources in the past fiscal year and could need to do the same going forwardLocal government employment has also remained below pre-COVID-19 levels. Raising costs for counties will require cuts to priority investments in vaccination campaigns, public schools, and infrastructure.  

The impacts of this legislation won’t be felt equally across the state.  

Small and rural counties have seen larger increases in jail costs in recent years: a 13 percent increase from 2007 to 2017 compared to just 2 percent for urban areas according to national analysis. Rural county budgets are also more likely to be hit hard by the downturn and less likely to receive aid to balance their budgets from state and federal governments.   

Senate Bill 101 demonstrates that Senate leaders continue to pursue hate, not fiscal constraint.

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

Cooper proposes asking voters to approve $4.7 billion for school and state building projects.

Gov. Roy Cooper has again proposed that voters approve borrowing money for statewide construction and renovation projects.

But the idea of borrowing, no matter who comes up with it, has proven to be hard to get legislative approval recently. Senate Republicans prefer paying for buildings with direct appropriations.

As part of his budget this year, Cooper has proposed putting a $4.7 billion bond to a vote in November.

-$2.5 billion would go to K-12 school construction.  A report from the State Board of Education and the  Department of Public Instruction based on a 2015-16 survey found school districts needed $8 billion for buildings, additions, renovations, and other capital costs.

-$500 million would go to community colleges

-$783 million would go to UNC campuses. The largest project is a new Brody School of Medicine building at East Carolina University, at $187 million.

The recommendation includes money for renovations at two of the state’s development centers and two of its neuro-medical centers, the state alcohol and drug treatment center in Black Mountain, and money to expand TROSA, a residential addiction treatment center based in Durham, to the Triad.

The bond recommendation includes $229 million to move the state Department of Health and Human Services from the Dorothea Dix campus in Raleigh to Blue Ridge Road.

Assorted state attractions would get a total of $460 million, including $70 million for NC Zoo exhibits.

Cooper included a $3.9 billion general obligation bond as part of his 2019-20 recommended budget that the legislature did not consider.

The state House has been amenable to the idea of asking voters to approve borrowing for capital projects. In the last two years, House Republicans have put together their own bond proposals, and passed them with little opposition.

In 2019, House Speaker Tim Moore cosponsored a $1.9 billion school construction bond bill that moved swiftly through the House and died in the Senate.

approval.

The House tried again last year, passing a $3.1 billion bond bill with the money to go to school construction and transportation projects. That bill also died in the Senate.

Earned Income Tax Credit offers more support for working families than standard deduction proposal

With the inclusion of the Earned Income Tax Credit (EITC) in the Governor’s budget, North Carolina is closer than it has been in years to renewing the most promising state tax program for working families.

North Carolina has one of the highest rates of working poverty in the nation. One in eight North Carolina workers earns poverty-level wages, which for a family of four, is $25,750 — well-below what it takes to make ends meet.

The Earned Income Tax Credit (EITC) is a bottom-up tax cut. While most tax cut proposals disproportionately benefit large companies and the wealthy, the EITC is designed to provide support to families with a maximum household income of just over $57,000 for a family with three or more children (eligibility and amount of the tax credit depend on income level and household size). This roughly lines up with taxpayers in the bottom 60 percent of the income distribution.

Enacting a generous and refundable EITC would cost exactly the same as raising the standard deduction as proposed in Senate Bill 337, but it targets the reduction to those who need the most support. At a time when North Carolinians with earned income below $60,000 have yet to see employment return to pre-COVID-19 levels and those with higher income have fully recovered, North Carolina needs to invest in supporting a more just recovery and target any tax cuts to those hardest hit by the pandemic.

A state EITC is targeted to provide a tax cut to low- and middle-income households, while a standard deduction increase would deliver 24 percent of the tax cut to the top 20 percent of taxpayers.

The standard deduction increase is not as valuable as a state EITC in advancing the outcomes we need to ensure families are healthy, safe, and financially secure.

A North Carolina EITC will help keep people connected to the workforce, help families make ends meet, and reduce poverty. The EITC provides those with very low earnings an increased credit to encourage more work hours. The credit varies depending on family size, recognizing that the more children a family has, the higher their expenses are.

Finally, the EITC helps address the state’s upside-down tax code, which currently demands that the lowest income households pay a larger share of their income than the wealthiest North Carolinians, by providing boost to the families that need it most. And those dollars returned to low- and middle-income North Carolina families will improve the health of both parents and children, improve education outcomes, college enrollment, and future earning potential of children in claiming families.

Heba Atwa is a Policy Advocate with the Budget & Tax Center, a project of the NC Justice Center.

Gov. Roy Cooper’s budget puts Medicaid expansion back “on the table”

The proposed budget Gov. Roy Cooper released last week included his long-time priority, Medicaid expansion for 500,000 North Carolinians without health insurance.

The standoff over Medicaid expansion between Cooper and the Republican-led legislature contributed to Cooper vetoing the state budget in 2019.

Cooper said at a news conference last week that he would not veto a budget over one issue, but he would not sign a budget that was “not right for North Carolina.”

“Getting more health care coverage to people in North Carolina is certainly a priority,” he said. “Medicaid expansion is the best way to do that. Everything is on the table this budget session. I’ve agreed with the legislative budget leaders that we want to put everything on the table. We hope that each side gets what it wants – that we work together to reach a budget I can sign.”

Medicaid expansion offers health insurance to adults who earn up to 138% of the federal poverty level. North Carolina is one of a dozen states that has not adopted Medicaid expansion, according to the Kaiser Family Foundation.

Republicans who control the state legislature have opposed expansion since it was first adopted as part of the Affordable Care Act, back when Bev Perdue held the governorship.

Republicans have offered various reasons over the years for opposing expansion – that Medicaid was “broken,” that expansion would cost the state too much, and later, that they did not want to expand the Medicaid population while the state was shifting from fee-for-service to Medicaid managed care.

The federal government picks up 90% of the costs for people who get Medicaid coverage under state expansions. Most of those who covered under expansion are low-income, childless adults.

Senate Republicans said they did not like an expansion-like plan that House Republicans devised that would have had hospitals pick up costs the federal government did not pay. That bill never made it out of the House.

The most recent federal COVID-19 relief package includes financial incentives for states that have not yet expanded Medicaid.

The Kaiser Family Foundation estimated that North Carolina would net $1.2 billion if it expands Medicaid.

Senate leader Phil Berger, an expansion opponent, told the Associated Press earlier this month that the extra money is time limited, and that coverage gaps could be addressed without “creating a whole new level of entitlement in the state of North Carolina.”

Cooper late last year created the bipartisan NC Council for Health Care Coverage to come up with ways to get coverage to more people. The Council developed a set of guiding principles, but did not settle on one strategy.

So far, Republicans have proposed bills with limited reach, such as the proposal to allow parents on Medicaid whose children are temporarily taken into foster care to keep their coverage.

In a Facebook post last week, Sen. Kevin Corbin, a Macon County Republican, said he was working on a bill with Sen. Jim Burgin, a Harnett Republican, that looks at expanding health coverage for working families.