CHARTBOOK: Four Charts on the Final Budget

Last week, Governor McCrory signed a new two-year state budget that reflects diminished expectations for what is possible in North Carolina. State lawmakers once again chose to cut taxes that primarily benefit the wealthy and profitable corporations, while also expanding the sales tax to new services like maintenance, repair, and installation, effectively further shifting the tax load onto middle and low income taxpayers.

Traveling farther down this tax-cut path to eventually eliminate income taxes is a race to the bottom that will continue to close the doors of opportunity for too many North Carolinians and won’t fix what is wrong with our state's economy.

The tax plan will reduce revenue by $1 billion annually when fully implemented, cutting off pathways to greater economic success like early childhood development, public schools, and community economic development while also failing to boost the economy or create the jobs North Carolina needs.

North Carolina can’t afford to debate what a successful state looks like at the margins.  Policymakers need to raise the bar so that we can build on the investments that have made our state great and follow what research shows is a better pathway to building a strong economy that works for everyone—education and rising wages that allow families to make ends meet and avoid poverty.

The charts below show how lawmakers are using the tax system and state budget to bulldoze North Carolina's infrastructure of opportunity rather than make adequate and targeted investments that will build an inclusive economy. Click each image to enlarge.

1.    Investment is at historic lows. Another round of tax cuts make this the new normal.

State investments are essential building blocks of long-term economic growth. Yet the budget will cap off the only period since 1971 in which state spending declined as a part of the economy for seven and eight straight years while the economy itself grew. State budgets typically allow spending to grow as the population increases and the economy changes. This ensures that state investments keep up with North Carolinians’ changing needs—like building schools and purchasing enough textbooks to meet a growing number of students, or providing adequate medical care and residential services to our growing number of seniors.

These long-term disinvestments have translated into significant unmet needs for our state’s growing population—a shortage of K-12 textbooks, school nurses, and community services for older adults. Continuing on a tax-cut path means there simply won’t be enough revenue left over to repair these critical investments or to position our state to compete.

2.    The tax plan is costly, squeezing out important investments in our families and communities.

The tax plan included in the budget will lose $383.6 million over a two-year period. But those losses balloon overtime: when accounting for the corporate tax breaks that are already scheduled to go into effect, we will lose more than a billion dollars per year by 2019. This ties the hands of future lawmakers who will have to contend with an even greater gap between resources and public needs, like a growing number of students and the inability to move teachers to the national average in pay.
 

3. The tax plan makes our tax system even more upside-down by asking even more from people who are already struggling to pay the bills.

The deal includes another costly round of income tax cuts, additional tax breaks for selected industries, and an expansion in the sales tax base to include installation, repair, and maintenance services. All told, the lowest income working families will end up paying a slight tax increase of $7, on average, whereas millionaires are the big winners again with a tax cut of more than $1,800 on average.

This budget doesn’t address falling wages, just as the last two rounds of tax cuts failed to do. When the 2013 tax plan passed, an hour’s work in NC earned around $2.50 less than the national average; now that gap has grown to almost $3.00. Allowing the state’s lowest-income families to keep more of what they earn is a key way to build a stronger economy but this tax plan ends up making the tax system more lopsided.

4.    This budget continues to hold us back from ensuring educational success for every child.

For the current school year, lawmakers invested more per student compared to the 2015 fiscal year budget but well below 2008 pre-recession levels—nearly $500 less per student. This wi real harm to the classroom and educational outcomes. The number of students in North Carolina schools has continued to increase since 2008, yet the amount of funding per student— and, therefore, the resources available to educate each student—has not been state lawmakers’ priority over tax cuts.

Ensuring that all students get a high-quality education is important to building a competitive workforce and an engaged and informed citizenry. Achieving this goal is hampered because policymakers narrowed their choices by cutting taxes — to say it is teachers or textbooks, smart technology in the classroom or a teacher assistant, a one-time bonus or a step increase presents false choices.
 

 

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