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So-called surplus built on the backs of everyday North Carolinians

Yesterday the NCGA’s Fiscal Research Division and OSBM released new state revenue forecasts that found a $400 million surplus, instead of a deficit, as had been previously estimated. But buried in the official memo are two dichotomies that explains all you need to know about the 2013 GOP tax plan…

Wages are down, but tax collections went up.

Wages are down, but business income is up.

  • Wages are down. From the memo: “Wage growth is still expected to be one percentage point below forecast and withholding revenue is projected at three percentage points below forecast for the fiscal year.”
  • But income tax collections are up. “The anticipated surplus is predominately due to higher income tax payments and lower refunds from the 2014 tax year… Personal Income tax collections are estimated to exceed the original forecast by 1.8 percent.”
  • While wage growth was disappointing, growth in business income and capital gains was strong. “It appears that the increase was driven by increases in business income, which is often paid under the Personal Income tax, and by capital gains from the sale of stocks and real estate holdings… The surplus this fiscal year is predominately the result of strong growth in business income, which resulted in a surge of final payments this April.”
  • Tax increases on small business increased revenue. “We can only speculate, but tax shifts in 2012 and 2013 due to the Federal fiscal cliff, and the State’s $50,000 business income tax exemption, which was repealed for the 2014 tax year, could have led to underestimating the potential for business income revenue this year.”

In other words, while wages for working North Carolinians are low, the state is collecting even more in personal income taxes. Small business owners may be paying more, but most businesses and corporate shareholders are doing just fine. This revenue forecast makes it clear who the GOP is working for.

Background

Non-Partisan Fiscal Research staff reports budget surplus driven by increased income tax payments despite the fact that “Wage growth is still expected to be one percentage point below forecast. “The anticipated surplus is predominately due to higher income tax payments and lower refunds from the 2014 tax year… Personal Income tax collections are estimated to exceed the original forecast by 1.8 percent. Wage growth is still expected to be one percentage point below forecast and withholding revenue is projected at three percentage points below forecast for the fiscal year.” (NC General Assembly, Fiscal Research Division, Consensus Revenue Report, May 6, 2015)

  • Wages are down. From the memo: “Wage growth is still expected to be one percentage point below forecast and withholding revenue is projected at three percentage points below forecast for the fiscal year.” (NC General Assembly, Fiscal Research Division, Consensus Revenue Report, May 6, 2015)
  • But income tax collections are up. ““The anticipated surplus is predominately due to higher income tax payments and lower refunds from the 2014 tax year… Personal Income tax collections are estimated to exceed the original forecast by 1.8 percent.” (NC General Assembly, Fiscal Research Division, Consensus Revenue Report, May 6, 2015)
  • While wage growth was disappointing, growth in business income and capital gains was strong. “It appears that the increase was driven by increases in business income, which is often paid under the Personal Income tax, and by capital gains from the sale of stocks and real estate holdings… The surplus this fiscal year is predominately the result of strong growth in business income, which resulted in a surge of final payments this April.” (NC General Assembly, Fiscal Research Division, Consensus Revenue Report, May 6, 2015)
  • Tax increases on small business increased revenue. “We can only speculate, but tax shifts in 2012 and 2013 due to the Federal fiscal cliff, and the State’s $50,000 business income tax exemption, which was repealed for the 2014 tax year, could have led to underestimating the potential for business income revenue this year.” (NC General Assembly, Fiscal Research Division, Consensus Revenue Report, May 6, 2015)

North Carolina’s median income was ranked 38th when Republicans took control of legislature, has since fallen to 47th behind South Carolina. Since McCrory has taken over as Governor, North Carolina’s median income has fallen by $3,998, going from being ranked 38th in the nation to 47th. Meanwhile South Carolina’s median income has gone from being ranked 50th to 42nd, higher than North Carolina according to the US Census Bureau. (US Census Bureau, Median Household Income by State – Single Year Estimates (1984-2013) inflation adjusted, accessed 1/30/15)

NC Budget & Tax Center: Majority of New Jobs Created Since End of Great Recession Pay Poverty Level Wages for Full Time Work. According to the North Carolina Budget and Tax Center, “almost six out of every ten new jobs created pay wages that keep workers trapped in poverty despite working full-time. Industries that pay workers enough to make ends meet accounted for just 16 percent of the state’s total job growth over the recovery to date.” (NC Budget and Tax Center, “State of Working North Carolina 2014”)

Lowest 60 Percent of Earners Have Seen Decline in Income Growth Over Last 4 Years of Overall Income Recovery. “This matches with income growth data that shows the bottom two-thirds of the income scale have not seen near the income growth of the top third. In the four year recovery period from the most recent recession, personal income growth is still below zero percent for lowest 60 percent of all earners. Compare that to the four-year recovery period from the 2002 recession when workers in lower income groups saw their incomes increase by as much as 25 percent.” (Triangle Business Journal, 1/11/15)

Non-Partisan Study Ranked NC 41st in Economic Outcomes for Residents: “many North Carolinians are still on shakier footing than the rest of the country.” “North Carolina still lags behind other states when it comes to the economic well-being of its residents, a study found, despite the fact that the national and state economies have strengthened considerably during the five-year recovery. The state ranks 41st in terms of overall outcomes of its residents, according to an analysis published Thursday from the Corporation for Enterprise Development, a Washington, D.C.-based nonprofit. The report evaluated states on 67 criteria related to finances, employment, housing, health care and education. The report underscores how the disproportionate growth of low-wage jobs, as well as lower education attainment and health care coverage, means many North Carolinians are still on a shakier economic footing than the rest of the country.” (News & Observer, 1/30/15)

McCrory’s Tax Reform has Made it Harder on Working Families, Most Pay More on Average While the State Budget Shortfall Grows

AP Factcheck: “The tax reform package also eliminates several exemptions and deductions that benefited working class taxpayers” “It’s true that the state’s income tax rate is going down for every taxpayer in 2014. But that does not mean all taxpayers will actually pay less to the state government over the coming year… The tax reform package also eliminates several exemptions and deductions that benefited working class taxpayers, including a popular program that allowed families a deduction on pre-tax income into a college savings account. According to a recent analysis by the legislature’s own Fiscal Research Division, a married couple with two children making $20,000 a year will go from receiving a $222 tax rebate in 2013 to owing $40 next year, a net swing of $262. At the other end of the income scale, a married couple with two children making $250,000 will get a $2,318 tax cut in 2014, according to the analysis.” (AP, 12/30/13; H998, adopted, 7/23/13)

  • Republican Tax Reform Preserved Tax Breaks for Yachts, Jets, Alcohol, and Country Clubs While Eliminating Tax Breaks “that benefited working class taxpayers.” While the News & Observer reported, “But still on the books is a $1,500 cap on the sales tax for a yacht or a jet, a provision that costs the state $10 million a year in lost revenue. Beer, liquor and tobacco distributors would keep their rebates worth a combined $12 million annually for collecting taxes from their customers on behalf of the state. Country clubs and other recreational nonprofits keep their exemption from the corporate income tax, a tax break worth a combined $600,000 a year.” The Associated Press reported the Republican Tax Reform plan, “eliminates several exemptions and deductions that benefited working class taxpayers.” (News & Observer, 7/18/13; AP, 12/30/13; H998, adopted, 7/23/13)
  • Gov. McCrory Communications Director: “He didn’t say ‘every’ or ‘all’” Citizens Would Get a Tax Cut. “McCrory communications director Kim Genardo said the governor’s statements referencing the new benefits to North Carolinians shouldn’t be interpreted as applying to all taxpayers. ‘He didn’t say ‘every’ or ‘all,’’ Genardo said. ‘You’re taking it literally that we mean every single citizen, and we did not say ‘everyone.’’” (AP, 12/30/13; H998, adopted, 7/23/13)
  • McCrory Even Raised Taxes on Over 900,000 Working Low-Income Families from Every County in North Carolina by Eliminating the Earned Income Tax Credit. McCrory Signed Bill that Eliminated EITC, Raising Taxes on Working Families. “The state House gave key approval Tuesday to legislation that would eliminate a state tax credit for low-income workers at the end of this year. The demise of the earned-income tax credit was included in House Bill 82, which updates sections of the federal tax code for North Carolina taxpayers.” (WRAL, 2/19/13; H82, adopted 3/13/13)
  • Nearly One Million Working Families Claimed EITC, which is Targeted at Low and Moderate Income Working Taxpayers. “According to the IRS, the Earned Income Tax Credit is “…a benefit for working people who have low to moderate income…It reduces the amount of tax you owe and may also give you a refund.” Cara Williams runs the Reinvestment Partners Taxpayer Assistance Center at Northgate Mall in Durham. She says about half of their clients qualify for the Earned Income Tax Credit. “And the clients that we serve, every dollar counts. So to lose $50 or to lose $500 is major to our clients,” said Williams. Williams says these are families that live paycheck to paycheck. “So when you’re looking at again, $50, $500 or $2,000. That is sometimes the biggest single payment people get all year and they use that money to make things work in their households,” said Williams. Numbers show nearly one million North Carolina families claim the state Earned Income Tax Credit each year.” (WUNC, 3/15/14)
  • EITC Utilized by 907,000 North Carolinians in all 100 Counties. “The state EITC continues to be a critical support for low-paid workers during the weak economic recovery. Nearly 907,000 North Carolinians claimed the credit in 2011, with claimants living in each of the state’s 100 counties.” (NC Budget & Tax Center, February 2013)