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The Senate budget: Tax cut addiction leaves NC’s civic core crumbling

So, the question as always comes down to one of vision.

The elected chieftains who decide how much money North Carolina’s state government will spend, what it will be spent on and how it will be raised must decide not only which programs and services will thrive and which will dwindle. They must decide to what degree the people of this state are truly a community, with an obligation to provide for the common good in the best interests of all.

These are the core issues as the General Assembly proceeds with its annual task of preparing a new state budget. Sadly enough, that “communitarian” impulse, while detectable here and there, has been overshadowed amid the ongoing crusade to cut taxes and thus to narrow the stream of revenues that finance the government’s activities.

Even if the state House improves the budget proposal sent over by the Senate, the final document is sure to represent a monument to opportunities missed in the name of easing tax burdens on wealthy people and profitable companies.

Those are opportunities to strengthen the state’s multi-layered educational system, from pre-K to our research universities. No single set of investments is likely to be as helpful to more North Carolinians in positioning them to live fulfilling, productive lives. And it should go without saying that it is our disadvantaged residents who particularly need access to well-equipped public schools staffed by skilled teachers, and to paths of further education and training that can lead to successful careers.

Legislators will forgo opportunities to strengthen our struggling rural areas by doing more to shore up vital social services – health care, child care, elder care.

Even while they acknowledge the problem, they will fail to confront head-on the debilitating divide between our poorer counties, where jobs have disappeared and populations have dropped, and our metro areas riding the crest of the 21st century’s knowledge economy.

And yes, unless legislators come to their senses, they will force communities still suffering from the after-effects of last fall’s Hurricane Matthew – places scattered across Eastern North Carolina that just can’t seem to catch a break – to endure more hardship and disruption. Certainly those places can’t count on stonehearted officials in Washington to come to their relief, judging by the recent appalling snub of the state’s aid request.

With some notable exceptions, the real flaw in the Senate’s budget approach doesn’t hinge so much on specific spending decisions. Many parts of the budget will adequately get the job done. The overriding flaw is that decisions on how much to spend are following decisions on how much to raise and on where the money will come from.

The analogy to a household having to spend within its means doesn’t hold up. Of course, tax levels must make economic sense and pass tests of fairness. But when the clear priority is to reduce the tax burden on those most able to pay – thereby reducing revenues that could go toward easing the many disadvantages that flow from poverty and isolation, and even toward giving middle-class folks a better chance to improve their lives – then something is badly out of whack.

Dark of night

The Senate approved its budget, framed as Senate Bill 257, shortly after 3:00 a.m. on May 12. The margin of passage was 32-15, with Republicans united in favor and Democrats against.

The process by which the 362-page bill (which actually covers a two-year period, with the second-year plan due to be updated a year from now) arrived at its final vote could fairly be called a travesty. A single day was allotted for the bill to be reviewed openly in committee. The two required floor votes — which are supposed to occur on separate days — were shoehorned into back-to-back sessions the evening of May 11 and then after midnight.

No wonder the chamber’s minority Democrats, mostly ignored during budget drafting, went through the exercise of submitting futile amendments that prolonged the wee-hours session. Their aim was to highlight how, because of unwise tax-cutting, the budget short-changed several areas such as state employee pensions, teacher salaries (despite some recommended increases) and programs to fight opioid addiction.

That’s when Republican leaders called a recess stretching to two hours while they figured out how to fix the Democrats’ wagons. Their solution: An amendment aimed at the opioid problems in several counties — with programs to be financed via spending cuts hitting Democratic senators’ districts.

Even a key House Republican, education appropriations co-chair Craig Horn, was reported to be publicly bothered by the move to cut funding for a science and math initiative for students in poverty-stricken Northampton County – whose Democratic senator, Erica Smith-Ingram, had sponsored one of the doomed amendments. Hopefully that’s a sign that the House’s majority Republicans won’t tolerate their Senate counterparts’ outburst of arrogant vindictiveness, which in this case would punish students more than anyone else.

Low, lower, lowest?

The Senate’s budget-writers can look at their masterpiece, rammed through to passage as it was, and wax rhapsodic in their self-congratulations. They can point to the fact that their $22.9 billion budget, covering the fiscal year that begins July 1, even includes a 2.5 percent spending increase over the current one. Sure, that’s half of what Democratic Gov. Roy Cooper had called for, but with their veto-proof majorities, legislative Republicans can thumb their noses in Cooper’s direction.

As we’ve been saying, though, the real story of S.B. 257 is on the revenue side – a plot that came from anywhere but out of the blue.

Starting when they took legislative control in the 2010 elections, Republicans have made tax cuts a top priority. That was partly an effort to undo tax hikes imposed to help the state keep its budget balanced during the economic near-meltdown of 2008-09. It also was intended to make North Carolina’s tax burdens more competitive with those in surrounding states, a reasonable-enough goal if not followed out the window.

But the lure of conservative dogma has made that window irresistible. Whereas the state’s personal income tax had been levied on a progressive basis, with people earning more paying at higher rates, the Republicans opted for a single lower rate that would apply to everyone with taxable income. From a top bracket of 7.75 percent, the rate has shrunk to 5.499 percent.

Meanwhile, the corporate income tax also has been lowered, from 6.9 percent to 3 percent. The sales tax likewise has been reduced, although it’s been extended to cover a range of services and other transactions. That has helped cushion the income tax revenue losses, but at the expense of middle- and lower-income residents whom the sales tax proportionately hits the hardest.

The tax-cutting agenda went into high gear after Republican Pat McCrory won the governor’s office in 2012. According to the Budget & Tax Center, an arm of the N.C. Justice Center, the result after four years is that the state is collecting some $3 billion less each year than it would have under the previous tax code. And the Senate’s proposed 2017-18 budget would make matters worse, lowering the personal income tax rate to 5.35 percent next Jan. 1. The budget bill also would ratchet down the corporate income tax to 2.5 percent by the start of 2019.

Those pending changes, as analyzed by legislative staff, would mean further hits to revenue collections of some $324 million in the next fiscal year and $709 million in the year thereafter. It’s true that overall economic growth tied to national trends has helped generate what’s expected to be a surplus of some $580 million when the current fiscal year wraps up. That’s good news – but not a windfall that can be relied upon to help sustain future budgets year in and year out.

Foundation trouble

Essentially, the state is allowing its civic foundation to erode. Despite a patchwork of positive moves, such as an uptick in pay for some teachers, steady tax-cutting is leaving North Carolina without the resources to deal with problems that have been allowed to fester.

The cutters may think they’re making the state more attractive for business, and companies as well as ordinary taxpayers would rather pay less than more. But the farsighted ones understand how an ample revenue stream benefits them – for example, by helping the university and community college systems to remain strong.

Then there’s the embarrassing, even scandalous, situation seven months after the epic flooding from Hurricane Matthew. Cooper’s office puts the storm’s North Carolina damage costs at $4.8 billion, and news reports show some residents of eastern counties still unable to return to their homes.

An initial round of federal disaster assistance in December amounted to some $330 million. Augmented by state funds, the pot grew to $1.4 billion. But when Cooper asked for another $900 million from Washington, what he got was the cold shoulder and a mere $6.1 million. Despite that, and despite proposing another $150 million for hurricane relief, Republican legislators would let the state’s “rainy day” emergency fund grow to its highest level ever. And forget about a tax-cutting pause that could help meet the need.

None of this may be a compelling concern for the wealthy, for whom vexations such as underfunded schools, inadequate access to affordable health care and skimpy disaster aid tend to be of little consequence. The state’s corporations keep raking in their profits (a big factor in the pending budget surplus).

This is a pattern, though, in which an ethic of shared obligation and shared reward is conspicuously missing. The Council of Churches holds that ethic to be central to its vision — not only grounded in a shared faith but also in its understanding that the whole community of North Carolina cannot prosper so long as some among us are left to cope unassisted with the disadvantages of upbringing and circumstance.

It’s the Council’s belief, and the wellspring of its advocacy on matters of taxes and budgets, that we’re all in this together. Or so we hope.

Steve Ford, former editorial page editor at Raleigh’s News & Observer, is now a Volunteer Program Associate at the North Carolina Council of Churches.

The post The Senate budget: Tax cut addiction leaves NC’s civic core crumbling appeared first on NC Policy Watch.

Category: Political News

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