MEDIA RELEASE: North Carolina’s public structures at risk due to Great Recession, inadequate revenue system

New report suggests strategies to push the state towards a modernized revenue system

RALEIGH (February 23, 2012) – North Carolina’s public structures and systems – such as its public schools, courts, and parks – have been badly damaged by the Great Recession, high unemployment, and an outdated revenue system, according to a new report released this morning. Without a strategy to improve revenue collections, the state’s public investments in education, health, and safe communities will fall short of what is needed to sustain a high quality of life and a prosperous economy.

The Great Recession caused the deepest decline in state tax revenues in more than half a century, and although revenues have made a modest recovery in recent months, they are still far below their historical levels. According to a new report by the Budget & Tax Center – a project of the NC Justice Center – the economic downturn and high unemployment have been the primary factors driving revenues to such low levels, but North Carolina’s outdated and increasingly inadequate revenue system also shoulders some of the blame.

It’s impossible for the state to educate students, train workers, and keep communities healthy without adequate revenue, the report said. Although state policymakers responded to the initial recession-driven collapse in state revenues with a balanced approach of targeted spending cuts and additional revenues in 2009, they have taken a harmful cuts-only approach to dealing with diminished revenues and growing demand for education, health care, and other core public services.

The report suggests that policymakers consider five strategies to improve revenue collections that would also push North Carolina towards a modernized revenue system. Taken together, these strategies could raise more than $1.5 billion in additional revenue through:

  • Capping tax subsidies that primarily benefit wealthy households
  • Reinstating the temporary 1-cent sales tax and doubling the value of the state’s Earned Income Tax Credit
  • Extending the sales tax to services where most service providers already collect and remit sales tax on some purchases
  • Requiring multi-state corporations to pay taxes on all profits earned in North Carolina
  • Adding a new top bracket to North Carolina’s income tax

Pursing all of these strategies would not make up for the billions in cumulative cuts to the state’s public investments during the Great Recession, said Edwin McLenaghan, a public policy analyst with the BTC and co-author of the report. However, they would help address the revenue challenges North Carolina will continue to face without action by state policymakers.

“In a time of persistent economic insecurity and challenging economic transitions for North Carolina’s families and businesses, now is an especially important time for North Carolina’s policymakers to strengthen the public structures and systems that will promote a future of shared prosperity and economic security for all North Carolinians,” McLenaghan said.

FOR MORE INFORMATION CONTACT: Alexandra Forter Sirota, Director, Budget & Tax Center, Alexandra@ncjustice.org, 919.861.1468; Edwin McLenaghan, Public Policy Analyst, Budget & Tax Center, Edwin@ncjustice.org, 919.856.3192; Jeff Shaw, Director of Communications, jeff@ncjustice.org, 503.551.3615 (cell).