NC Budget and Tax Center

Piecemeal budgets reveal dysfunctional process and a refusal to come to the table

Yesterday the NC House gave unanimous approval to the Senate’s version of four bills that would provide pay raises to state employees, adult correctional employees, state highway patrol employees, and state bureau of investigation (SBI) and alcohol law enforcement (ALE) employees, respectively.

At first glance, this effort to provide small pay increases may seem like a genuine effort to get things done for our state. But in reality it’s a way to appease narrow, politically powerful segments of the population by providing extremely small – less than the rate of inflation—pay increases.

This “effort” reveals a new level of dysfunction whereby legislative leaders continue to refuse to come to the table to pass a complete budget. It fails to recognize that the budget process is an important one, because it requires debate and a full accounting of how our tax dollars will advance our shared priorities. It is a vision of where our leaders think we should go.

North Carolinians deserve more than a few elected leaders making decisions behind closed doors about how the state should be funded for the next two years. They deserve more than piecemeal approaches that can’t chart a path forward.

Rather than take the Governor’s June 28th veto of the budget as an opportunity to score political points, it should have been an opportunity to sit down at the negotiating table. Instead of viewing the veto as a sign of no compromise, it should have opened dialogue about concerns with the budget.

The reality is that North Carolina deserves a budget that works for everyone. Maximizing investments in areas that benefit us all, like public education, classrooms that are safe for learning, opportunities for early childhood education, resilient communities, and healthy environments.

The path to strong communities does not include tax cuts for those at the top. It requires corporations and wealthy North Carolinians paying their fair share, not asking more from those with the fewest resources, as reflected in our current tax code and would be worsened with the budget’s proposed tax changes.

The legislative budget failed on all of these fronts, and the “mini budgets” also fail our state.

The piecemeal pay raise budgets are a way to strong-arm support for modest pay raises and are a distraction from the real problem at hand: North Carolina is two months into the new fiscal year and operating on insufficient stopgap measures. More fundamentally, we are a decade into the austerity that results from prioritizing the few over the many.

The current ploy is an attempt to isolate issues—public education, taxes on the wealthy and corporations, Medicaid expansion, school infrastructure—and pit them against each other.

The reality is that we do not need to choose state employee salaries over safe schools for our children, or healthcare over roads, or parks over food. These are false choices. North Carolina deserves a good faith effort on the part of our lawmakers to invest in our state.

Suzy Khachaturyan is a Policy Analyst at the Budget and Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

New analysis: A third of NC taxpayers won’t benefit from proposed tax refund plan

Proposal would also undermine preparations for next recession

North Carolina Senate and House leaders are moving forward with a flawed proposal to spend the majority of the state’s revenue over collections, more than $600 million, to issue tax refund checks of $125 per taxpayer ($250 for married couples).

Such a proposal undercuts the potential to address pressing needs in communities like school construction, hurricane rebuilding, shoring up the state’s Rainy Day Fund, and one-time investments that can improve the quality of life for children and families through quality education and health care.

It also flies in the face of prudent budgeting in the face of increasing concerns that the country and North Carolina could experience a recession in the near-term. Setting aside one-time money to minimize the potential hit to state revenues from a downturn is fiscally responsible.

Sending tax refunds to individuals won’t deliver the same economic boost as building schools or fixing our water infrastructure primarily because it won’t benefit those who need it most and are most likely to spend it. By design, the proposal is limited to tax returns that had positive income tax liability in 2018. That means that many taxpayers whose income is low or who receive various tax credits won’t receive a refund check.

New analysis from the Institute of Taxation and Economic Policy finds that 32 percent of taxpayers will not receive a tax refund check despite the fact that all North Carolinians pay state and local taxes each year.

Here’s why:

Some North Carolina taxpayers earn too little to file income taxes. Yet all North Carolinians pay sales and excise taxes. Low and middle income taxpayers pay a greater share of their annual income in sales and excise tax to our collective effort to strengthen community well-being.  The current tax refund proposal doesn’t account for the total tax load carried by North Carolina taxpayers.

Many taxpayers don’t have income tax liability due to the state’s high standard deduction. Overtime, the standard deduction—the amount of income you can earn before you have to start paying taxes—has been increased by policymakers. Increases in the standard deduction means that fewer people have income tax liability thus making fewer NC taxpayers eligible for the tax refund.

New analysis from the Institute on Taxation and Economic Policy finds that North Carolina taxpayers most in need of an income boost and those most likely to spend their refund are less likely to receive one. A full 70 percent of taxpayers in the bottom 40 percent of the distribution, those whose average income is below $36,000, will not receive a tax refund. At the same time, the top 20 percent of taxpayers receive 34 percent of the tax refunds.

It is time for a more serious conversation about our fiscal decisions and a return to the process of finalizing a budget that considers the full range of needs now and in the future.

Martine Aureline contributed to this post.

NC Budget and Tax Center

Legislative leaders need to invest in longterm needs of NC, not one-time redistribution

Redistributing the tax dollars of the state’s wealthiest taxpayers (66 percent of all capital gains income in the state are held by taxpayers in the top 1 percent) to all taxpayers may sound appealing to Senator Berger, but our families, communities, and economy would be a lot better off if they invest those dollars in schools that remain underfunded, people who can’t get the health care they need, and our water that is literally poisonous.

Senator Berger’s redistribution proposal won’t permanently fix the state’s upside-down tax code, either, given the one-time nature of these dollars.

With the announcement that the state may have a larger than projected over-collection of revenue that can help to meet the backlog of unmet needs in classrooms and communities, it is time for legislative leaders to get to work on finalizing a budget that better reflects the priorities of leadership looking to move our state ahead and account for how they will spend those dollars in the next year.

Economists from both the General Assembly’s Fiscal Research Division and the Office of State Budget and Management found this spring that the $896 million more in revenue over projections was due primarily to larger than expected increases in capital gains income.  Wage and salary income performed at projected growth levels. States across the country have experienced similar unexpected increases in their revenue, largely from the same source, although also from corporate profits.  These increases are also happening in states that have not recently cut taxes and in states that recently have increased tax rates like Minnesota.

In the face of growing income inequality where the top 1 percent have incomes 20 times that of the bottom 99 percent, these additional dollars should be driven into breaking down barriers to more equitable outcomes in our state.

Instead of concocting ever more complicated schemes to constrain opportunity in our communities, Senator Berger and Speaker Moore should work with members on both sides of the aisle to put forward a budget that deploys these dollars for the public good. Read more

Commentary, NC Budget and Tax Center

NC has nation’s third highest total of excessive deaths from failure to expand Medicaid

In case you missed it, there are some new and incredibly sobering numbers out that ought to be interfering with the sleep patterns of Senate President Pro Tem Phil Berger and House Speaker Tim Moore. As Alexandra Sirota of the N.C. Budget & Tax Center recently reported:

New research released by the National Bureau of Economic Research provides estimates of the life and death impact of Medicaid expansion.  While many researchers have pointed to the improvements to health outcomes, management of health conditions, and quality of life that comes with access to affordable health care for those in need, this data provides new and compelling evidence that the decision to expand Medicaid has a profound affect on the life expectancy of adults living in the coverage gap.

By linking death records and data on program participation and health outcomes across all states, the authors of this new report estimate the impact of Medicaid expansion on the mortality rate of near-elderly adults.  Their findings point to a 9.3 percent decline in annual mortality for this age group in those states with Medicaid expansion.  The primary reason for the improvement in life expectancy is disease management while under the care of Medicaid.

In addition to this nationwide comparison, the researchers provide estimates of the number of excessive deaths in North Carolina due to the failure of Medicaid expansion.  Three hundred and fifty people in North Carolina died because of the lack of affordable health care coverage.  This represents the third highest number of excessive deaths for a state that hasn’t expanded Medicaid behind Texas and Florida.

NC Budget and Tax Center

The N.C. budget stalemate, explained in GIFs

Earlier this summer, NC lawmakers passed a $24 billion conference budget that missed a number of opportunities to provide basic services and improve the lives of everyday North Carolinians. Within 24 hours, Governor Cooper vetoed the budget, calling it a “failure of common sense and common decency.”

On July 1, the Fiscal Year began and we didn’t have a budget.

No budget??!! While you might be confused about how we’re still running as a state, it’s because there’s a statute that keeps public programs funded at prior year levels.

This means that enrollment growth for schools and health care isn’t funded, pay raises and increases in retirement contributions for teachers and state employers aren’t provided, and emerging needs aren’t addressed.

A couple weeks after the start of the fiscal year, Governor Cooper released a compromise proposal that keeps nearly every major component of the conference budget — except it also includes a clean Medicaid expansion and eliminates tax cuts to corporations, using that revenue to invest in teachers and schools.

Read more