MEDIA RELEASE: President's budget invests in North Carolina's working families, balances need for debt reduction

February 1, 2010

North Carolina would receive $1.5 billion more education dollars, $1.3 billion in transportation and infrastructure investments, about $600 million in housing money and almost $900 million in new Pell Grant funding

RALEIGH (Feb. 1, 2010) -- The President's budget invests in North Carolina's working families while balancing critical needs such as education and housing with deficit reduction, state budget and tax experts said today.

"This budget is a valuable first step toward shoring up North Carolina's economic foundation," said Meg Gray Wiehe, a policy analyst with the NC Justice Center's Budget & Tax Center. "Investing in schools, affordable homes and expanded transportation infrastructure will help our working families build economic prosperity for everyone in North Carolina."

President Barack Obama's proposed budget would offer $1.5 billion for schools, students, and teachers in North Carolina; provide $888.4 million in new funding for Pell Grants to help families pay for college; extend $598.3 million in housing assistance; and infuse $1.3 billion of capital into the state to fix and expand the North Carolina's network of roads and highways, modernize airports, and expand water and sewer infrastructure.

The budget also would reduce taxes for 3.4 million North Carolina families, which is managed by reforming tax subsidies offered to big corporations. Taken as a collective, these moves would create jobs and point North Carolina and the nation toward prosperity.

"In the short-term, creating jobs and stimulating the economy and creating jobs is a top priority in North Carolina," said Wiehe. "Upgrading our state's housing and transportation infrastructure as well as investing in our kids' education is a good strategy to achieve this goal as we move toward deficit reduction in the long term."

Observers worried that the President's pledge to freeze discretionary spending would limit funding for vital public investments. But the budget prioritizes education, housing, and working family supports over other less essential programs, such as NASA's initiative to send humans back to the moon.

While capping overall domestic discretionary spending, it would actually increase funding in 2011 in  areas such as education, clean energy, infrastructure, and basic research and development. For example, the budget would strengthen tax credits and programs that help low- and middle-income families with child care costs, which should enable more parents to work or to work more. This would increase worker productivity, encourage families to save more, and stimulate the economy while easing the pain of the recession.

The budget also proposes $90 billion in temporary increases in funding to extend unemployment benefits and fiscal relief to state governments through the end of fiscal year 2010-2011.

"By helping working families save more, access affordable child care, and send their kids to high-quality schools, this budget would help our economy grow while easing the recession's impact on people," said Louisa Warren, a senior policy analyst with the NC Justice Center focusing on public benefits.

It would also substantially strengthen financial assistance so more North Carolina students can afford college, through the Pell Grant program.

"Investing in education pays off in so many ways for North Carolina," said Dr. Stephen Jackson, a policy analyst at the NC Justice Center's Budget & Tax Center specializing in education and transportation policy. "A better educated workforce is a more productive one, so helping students achieve more education is better for people in the here and now as well as better for our long-term economic future."

Also, Jackson said, investing in transportation and other vital infrastructure needs is "essential to North Carolina's economic growth and a better future for working families."

The budget also reaffirms the President's commitment to comprehensive health care reform. Adam Searing, the director of the NC Justice Center's Health Access Coalition, called this "an absolutely essential step."

"Rising health costs don't just devastate North Carolina's families and small businesses, they are a primary factor in exploding the deficit," said Searing. "The single most important way to address America's fiscal problems is to minimize the growth in heath care costs through comprehensive health reform. This would help small business stay afloat and protect Americans from going broke if they get sick."

The budget also contains significant steps toward tax reform. It proposes to save $750 billion over 10 years by narrowing tax subsidies for oil and gas companies, multi-national corporations that shift profits abroad to avoid paying their fair share of taxes here, and high-income households. It would also reform certain practices by financial institutions and take other steps to reduce tax avoidance.

This $750 billion in tax savings would enable $284 billion for new tax cuts, which would be targeted primarily for middle- and lower-income families and for businesses. A specific example of a positive tax change for low and moderate income families is a proposal to expand the Earned Income Tax Credit.

"Targeted tax cuts for working families would stimulate the economy while also serving deficit reduction aims," said Wiehe. "Low- and middle-income families are more likely to spend tax savings, keeping money flowing through the economy. In this way, the President's budget has its priorities straight regarding tax policy."

The President's budget would allow the Bush-era tax cuts for high-income Americans expire on schedule at the end of this year. Extending these tax cuts would add $678 billion to the deficit over the next 10 years, not including the costs of interest, and do little for the economy.

By contrast, the Congressional Budget Office and economists such as Mark Zandi of Moody's argue that well-designed tax and spending measures to boost the economy and create jobs, while letting the high-income tax cuts expire on schedule, would help America both in the near term (by boosting economic growth) and the long term (by reducing long-term deficits).

The President's budget attempts to do this. It offers $266 billion in temporary tax cuts and expenditure increases now to avert a dangerous double-dip recession, while saving roughly 2.5 as much over the next decade by letting the Bush tax cuts for the wealthiest 2 percent of Americans expire.