New budget leaves state ill-equipped to promote prosperity or even meet basic needs
State lawmakers concluded their 2015 session this week with a flurry of activity on a host of important substantive and controversial issues. Indeed, there was so much action that it was almost enough to overshadow the most important bill of the year – the massive 429 page state budget  that became law only last Friday. Fortunately, a new and extremely useful report from the fiscal policy experts at the North Carolina Budget and Tax Center should help to return public attention to the budget and the myriad important policy changes it contains.
Sadly, the overarching findings of the report are not encouraging. Most notable is the fact that “tax changes made in the new budget will limit North Carolina’s ability to support the public investments that promote widespread prosperity.”
The following is from a media release that accompanied the new report:
Tax cuts will reduce available revenue for the biennium by $841.8 million, according to a new report from the Budget & Tax Center , a project of the NC Justice Center. Within four years, the annual cost of the tax changes will balloon to more than $1 billion each year, due to the phase in of tax rate reductions for individual taxpayers and profitable corporations. This revenue hit will limit the ability to support state investments in public education, economic development, the court system, and other services that serve as essential building blocks of long-term economic growth, the report said.
“At this critical point in the state’s uneven and slow economic recovery, policymakers chose to deliver greater tax benefits to the wealthiest few rather than build a solid foundation that supports opportunity for many,” said Tazra Mitchell, a policy analyst with the Budget & Tax Center and co-author of the report. “Public investments that promote a strong and inclusive middle class—quality schools, affordable healthcare and housing and safe, healthy neighborhoods—are being sacrificed to pay for tax cuts that primarily benefit the wealthy and profitable corporations.”
Compared to the 2015 fiscal year budget, the new budget increases total General Fund spending by 3.4 percent in the first year. Most of these funds will pay for higher public school costs due to rising enrollments, the UNC system, and Medicaid, as well as pay raises and bonuses for teachers and other public employees. Accordingly, the state budget will barely cover the pressing needs of North Carolinians and leaves little for rural economic development, environmental protection, and other vital services.
Since 2010, North Carolina’s state budgets have increasingly failed to keep up with public needs, the report said . State spending as part of the economy has consistently shrunk year after year, and only continues to do so with the new budget—at a time when public needs are growing, not shrinking. State budgets typically allow spending to increase as the population grows and the economy changes, especially after an economic downturn, as it helps the state to keep up with its residents’ needs.
Instead, inadequacy runs rampant in the 2016 fiscal year budget: flat year-over-year spending on the pre-kindergarten program that serves at-risk 4-year olds; investment per student in public schools well below 2008 pre-recession levels; and rising tuition at community colleges for the seventh consecutive year. The budget also fails to expand Medicaid, offer any cost-of-living adjustments for retired public employees, supply funding for the Healthy Corner Store Initiative, or support rural communities by expanding access to reliable high-speed internet.
Additionally, the budget’s new income tax cuts and sales tax expansion shift the tax responsibility to low- and middle-income taxpayers and away from the well-off and profitable corporations. This tax shift won’t help boost North Carolina’s economy, the report said. State lawmakers expanded the state sales tax to apply to repair, maintenance, and installation services to make up some of the money lost by cutting income taxes. Consequently, at a time when every dollar matters in making ends meet, low- and middle income taxpayers will now pay more in sales taxes while seeing little to no benefit from income tax cuts. Meanwhile, large, profitable corporations get tax cuts under the budget at the same time the state is reducing support for vital services.
In North Carolina, the wealthier someone is the lower the share of his or her income that goes toward state and local taxes compared to everyone else. The tax changes reflected in the new budget exacerbate this disparity. On average, North Carolinians making $20,000 a year or less will see their overall state taxes go up slightly by $7. Those making between $34,000 and $57,000, on average, will receive a tax cut of $44, which equates to $3.67 per month. The top 1 percent, those making at least $423,000 a year, will on average receive a tax cut of nearly $2,000.
“Further tax cuts means there simply will not be enough revenue to repair our crumbling infrastructure and develop the state’s human capital in ways that position our state to compete,” said Cedric Johnson, a policy analyst with the Budget & Tax Center and co-author of the report.
The full report can be found at this link: http://www.ncjustice.org/?q=budget-and-tax/btc-reports-diminished-expectations-and-resulting-drag-ncs-economy-summary-2015-17