Marion Johnson of Think NC First recently sat down with Alexandra Sirota, Director of the N.C. Budget & Tax Center, to talk about North Carolina's ongoing budgetary issues.
State budget officials recently reported that North Carolina’s tax cuts will cost the state more money than they originally predicted. Does that surprise you?
"Unfortunately, I am not surprised. We estimate that the losses in FY2014-15 could be as high as $1.2 billion.
There are a number of reasons why we expect the cost of the tax plan to rise. The state’s richest taxpayers have captured the lion’s share of income growth since the recession ended, and earlier estimates were not sufficiently capturing their disproportionate gains
Additionally, reforms to itemized tax deductions and elimination of tax credits are not likely to keep as much revenue for the state as anticipated, since these are already to some extent built into taxpayers’ withholdings.
I am very surprised that policymakers ignored this information and failed to create a budget that’s sustainable."
What does this budget shortfall mean for North Carolina families?
"The revenue shortfall will cause very real pain for North Carolina families. With fewer dollars for policymakers to invest, it will be more difficult for families to see a clear pathway to greater economic security and for the economy to remain on stable footing.
Families with children will experience the negative impact in classrooms: fewer teacher assistants, out-of-date textbooks, longer bus rides to school. Some parents will lose their child care subsidies, making it harder to find safe after-school care.
There will also be missed opportunities. While other states are investing more revenue in state of the art technology in the classroom, economic development initiatives to bring jobs to those who need work, or conduct research at their public universities to seed the next big private venture, North Carolina is not. We’re losing our competitive position."
What can state government do to make us competitive again?
"First and foremost, policymakers should reject the idea that tax cuts will usher in an economic boom for the state. There is really no consensus in the academic literature on this point, and many states—most notably and recently Kansas—are finding that such an approach is actually hurting employment and income growth.
Second, policymakers need to invest in students' education from pre-K to career so that the state can continue to attract businesses, grow local businesses, and develop a robust civic culture engaged in communities.
Finally, policymakers must focus on the reality of the state’s economy: there are still too few jobs, and too many of the jobs being created in North Carolina since the recession ended pay below the Living Income Standard, and this creates hardship and societal costs that don’t allow the economy as a whole to thrive. This is not a recipe for improving North Carolinians economic standing. Policymakers must focus on quality job creation by supporting industries—through Medicaid expansion or the development of green infrastructure—that have the potential to deliver higher paying opportunities."
You just mentioned Medicaid expansion – how would that help our economy?
"As we have seen in many rural communities across the state, an individual’s inability to afford health care puts a significant burden on hospitals and medical practitioners. Medicaid expansion provides those individuals and health care professionals with the financial resources to ensure better health outcomes and keep hospitals open. Given the strength of North Carolina’s health care industry, Medicaid expansion will help ensure that the industry can continue to innovate and deliver quality care as it grows new jobs to meet the needs of this population."
Can you say more about the Living Income Standard? How does it differ from the poverty level?
"Rising costs and falling wages are squeezing North Carolina families, and many of the typical measures of just how families are faring fall far short.
The Budget & Tax Center developed the Living Income Standard to better assess what it costs working families in all 100 counties to provide the basics. In 2014, the Living Income Standard is about $52,000 for a family of four.
The Living Income Standard differs from the poverty level in that it is based on actual cost data for a range of key needs, from transportation to health care to food to housing. The poverty level is based only on what a few food products cost in the 1960s adjusted for inflation, and does not capture the variation in costs by region or community."
Lawmakers finally agreed on a state budget in August. What do you expect to see next budget cycle? Any hope that lawmakers will reverse course on tax cuts?
"I expect that we will be hearing very soon that agencies will need to make cuts to their budgets because the tax cuts continue to drain available resources for important programs and services. In the next budget cycle, the tax cuts will loom large as at least one more round of rate reductions for individual and profitable corporations will occur in January 2015, making the state’s financial problems even worse. There is little policymakers can do other than reverse course on the tax cuts if they truly believe that investing in education should be a priority."
Click here to find more from the N.C. Budget & Tax Center.