Budget and Taxes Move Front and Center
- The State Budget
- Tax Changes
- Tax Cuts’ Painful Costs
- Racial Justice Revisited
- Senators Choose to Cut
The State Budget
Two weeks ago, leaders of the state Senate unveiled SB 402, their proposed state budget, at the start of the week (on Sunday afternoon, actually) and ran it through Appropriations and Finance, secured passage on second and third readings, and sent it to the House, all before lunchtime Thursday. The House is expecting to finish its work by the end of next week. The two versions will be different in ways that will guarantee that a conference committee will have to work out the final budget.
Here’s a brief summary of significant points in the Senate budget. To see the entire budget bill, click here. To see the “committee report,” which contains line-by-line appropriations, click here.
Basic numbers for Fiscal Year 2013-14:
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Total Spending — $20.5 billion
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Public Schools — $7.8 billion
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Community Colleges — $1 billion
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UNC System — $2.6 billion
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Health and Human Services — $5 billion (including $3.5 billion for Medicaid)
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Department of Public Safety — $1.7 billion
Increases in revenue:
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$137.5 million taken from Tobacco Settlement funds
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$3.5 million from ending the Public Campaign Fund
Decreases in revenue
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$217 million in tax reform package for Fiscal Year ’13-’14. Another $553 million in ’14-’15. The actual tax changes are not in the budget bill, just the amount of reduction. (But see Tax Changes, below.)
Highway Fund
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Add a fee for hybrid and electric cars, to make up for them not paying as much in gasoline taxes. The fee would be $50 for hybrids (which use some gasoline) and $100 for electrics (which do not). Estimated to raise only $1.5 million out of a Highway Fund budget of $2.0 billion.
State Lottery
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Under current law, the lottery’s net revenues are divided automatically according to percentages written into statute: 50% to reduce classroom size for “early grades” and for programs for at-risk four-year-olds, 40% for school construction, and 10% for college scholarships.
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Under the Senate budget, those automatic percentages would be eliminated, and the General Assembly would allocate lottery revenues however it wished as part of the annual budget process.
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For FY ’13-’14, the Senate allocation is 46% for “classroom teachers,” 13% for prekindergarten, 21% for school construction, 6% for “scholarships for needy students,” 2% for need-based financial aid to UNC students, and 11% for a financial aid reserve fund.
Public Schools
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Maximum class sizes would be eliminated in order to give local school districts “maximum flexibility . . . to maximize student achievement.”
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Reduction of $142 million for teacher assistants
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Reduction of $286 million for classroom teachers
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Even with some additional funding, total funding for Public Education drops by $135 million.
Health and Human Services
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Drug testing required of all Work First applicants and recipients. (This special provision would have the same impact as S 594. See NEWS, May 3.)
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Close state-operated drug and alcohol treatment centers and transfer funds to local offices running mental health, developmental disabilities, and substance abuse programs. Closing the treatment centers will result in cost savings of $38 million, but only $10 million of this would be returned for local programs.
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Cut mental health spending from $697 million to $676 million.
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Cut the Medicaid eligibility level for pregnant women from 185% of the federal poverty level to 133%.
Other
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Sustainable Local Food Advisory Council – scheduled to sunset in 2015, would sunset this month.
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NC Sustainable Communities Task Force – scheduled to sunset in 2016, would sunset this month.
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Get rid of all current members of Environmental Management Commission, Coastal Resources Commission, and the Coastal Resources Advisory Council
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Eliminate state funding for the Community Development Initiative ($2.8 million), Institute for Minority Economic Development ($2 million), Land Loss Prevention Project ($575,000), NC Association of Community Development Corporations ($800,000), NC Indian Economic Development Initiative ($86,000), and the Rural Center ($16.6 million), all of which benefit rural parts of our state and/or racial minorities.
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Eliminate state funding for Prisoner Legal Services – $2.9 million
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Add $1.5 million to implement photo ID
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Add $5 million to the Department of Revenue to implement changes in the tax law.
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Cut the Housing Finance Agency by $900,000
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Add $231,000 (more than a 50% increase) to the office of the Lieutenant Governor, who happens to be the presiding officer in the Senate. This will add a communications director, policy director and director of constituent services.
Tax Changes
Tax “reform” has been a high priority for legislative leaders. There are now three competing proposals to change the state’s tax system, some of it in very significant ways. Here are brief summaries.
SB 677, NC Fair Tax Act, proposed by the Senate leadership.
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Adopts a flat tax rate for personal income taxes (i.e., not a progressive structure where those with higher incomes pay a higher percentage in tax) and drops the rate to 4.5% over three years. The current rates are from 6% to 7.75%, based on income.
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Taxes income from Social Security for those with other sources of income.
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Limits the deductibility of mortgage interest payments
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Cuts the corporate income tax rate from 6.9% to 6%.
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Sets a sales tax rate of 6.5%, and its base would expand to about 130 services and also to food and prescription drugs. (The current sales tax rate is 4.75% statewide plus a local sales tax that is 2% for most counties.)
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Eliminates the state estate tax, which is paid only by the wealthiest.
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Limits sales tax refundability for nonprofits, including churches. In the first year, refunds would be limited to $1 million per year (i.e., it would affect only the largest nonprofits, those with enough purchases so that they paid sales taxes of more than $1 million). The cap would come down each year until it reached $100,000 by 2016. Again, this wouldn’t affect small to medium-sized churches (unless they were in a building program), but all churches should be concerned about this change, if for no other reason than that future General Assemblies could decide to lower the cap even further or eliminate it entirely.
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Requires nonprofits, including churches, to charge sales tax on most of the services they offer at a cost, such as weekday child care.
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Eliminates incentives for lower-income (non-itemizing) North Carolinians and businesses to make charitable contributions to churches and other nonprofits.
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Cost in lost revenue – more than $1 billion over three years.
HB 998, Tax Simplification and Reduction Act, is the House leadership’s plan:
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Expresses its intention to eliminate the personal income tax entirely over time and to shift taxation to “consumption” (i.e., the purchase of goods and services).
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Adopts a flat personal income tax structure and cuts the tax rate to 5.9%.
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Allows Itemized deductions only for mortgage interest payments, charitable contributions, and real estate taxes. These deductions have been some source of consternation to House leaders. At one point they were capped at $25,000. At another point they were unlimited. Now there is a $25,000 cap on mortgage interest and property taxes, but none on charitable contributions.
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Cuts corporate tax rate from 6.9% to 5.4% by 2018.
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Expands the sales tax base to cover alteration, repair, maintenance, cleaning, and installation services which are performed on personal property. Electricity and piped natural gas would be taxed at the same rate as other goods.
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Maintains sales tax refundability for all nonprofits.
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Maintains charitable giving incentives for businesses.
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Eliminates non-itemizer tax credit for charitable contributions by individuals.
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Lost revenue — $1.7 billion over five years.
HB 998 has passed second reading in the House and will get its final House vote early next week.
SB 394, Lower Tax Rates for a Stronger Economy, a bipartisan Senate plan:
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Adopts a flat personal income tax rate of 6% in 2015
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Cuts corporate income tax rate from 6.9% to 6% and links it to the rate for personal income tax.
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Expands the sales tax to include some goods and services that are now exempt, including maintenance and repair services, and the state rate is lowered from 4.75% to 4.5%.
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Maintains sales tax refundability for nonprofits.
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Restructures charitable giving incentives by eliminating all itemized tax deductions, allowing those who take charitable deductions on their federal taxes to take a 6% credit of the amount claimed for federal taxes (up to a $600 credit), and eliminating the 2% floor for the non-itemizer tax credit.
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Requires some nonprofits to charge sales tax on “entertainment and recreational” services, such as summer camps.
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Cost – the bill is said to be revenue neutral.
North Carolina’s tax system has been in place for 80 years. It needs to be brought into the 21st Century, especially to deal adequately with an economy no longer based mostly on agriculture and manufacturing. But the system still needs to maintain progressivity, not scale it back. And changes which shift the primary source of revenue from a multi-tiered personal income tax to consumption taxes are going to shift more of the tax liability from wealthier people to those of lower incomes.
As Together NC, a coalition of which the NC Council of Churches is a part, is saying to legislators: “None of the current tax proposals would build a better North Carolina because they fail to invest in our neighborhood schools, world-class universities, health care, and protecting our natural resources — all of which are critical to the state’s economic prosperity and quality of life. The tax plans endanger these vital public investments, while making middle-class and low-income North Carolinians pay more in order to give the wealthiest a tax cut.”
Analysis and Commentary by Steve Ford
Tax Cuts’ Painful Costs
June 7
“Moral Monday” demonstrators at the General Assembly bring a wide range of grievances. They charge the legislature’s Republican majorities with failing to uphold the interests of North Carolinians who count on robust public education programs as paths out of poverty and doorways to success. They say poor people’s health care needs are being neglected. They decry what they see as methodical efforts to suppress the votes of African-Americans and others who tend to side with Democrats. They criticize a perceived legislative indifference to racial discrimination in the justice system.
It’s fair to say they’re not imagining things. No wonder the demonstrations have struck such a chord, with dozens committing peaceable civil disobedience and submitting to arrest to highlight their concerns.
These are the kinds of concerns that loom large among those of us aligned with the N.C. Council of Churches’ emphasis on social and economic justice. Especially in the interlocking areas of spending and tax policies, the signs are not good. But if there’s a hopeful perspective, it’s that many big decisions have yet to be made. There’s time to work out compromises that could limit the damage – for example, in avoiding a reinstatement of state sales taxes on food and prescription drugs.
The state Senate’s proposed budget forgoes $770 million in spending over the next two years to allow for cuts in personal and corporate income taxes. Senate leaders’ thinking has been that meanwhile, the state sales tax rate would be increased and the tax would be extended to cover a broad spectrum of services, as well as purchases of food and medicine.
The tax cuts are intended to make North Carolina more competitive in attracting businesses and jobs. But in squeezing the spending side of the budget, they would be self-defeating in terms of raising the money to address companies’ needs for well-educated employees, healthy communities and a clean environment. People at the upper end of the income scale would see taxes fall, but higher sales taxes would be hard on the less well-off. An alternate tax plan offered by Senate Democrats with some Republican support also would help update the tax system without being so skewed in its impact on the poor.
On the House side, the leadership has successfully backed a third plan, House Bill 998, tentatively approved June 7 along party lines. The plan would cut personal and corporate income taxes and extend the sales tax, but not to food and medicine. Gov. Pat McCrory has signaled his support.
Sponsors tout the bill as modernizing the state’s tax system to reflect the shift toward a services-oriented economy and as offering income tax relief, which they say would help energize the state’s economy. But in House debate, what also became clear was that the plan offers generous breaks for the wealthiest taxpayers while those just scraping by would see minimal breaks at best. Overall, the tax burden relative to people’s incomes would shift away from the top and toward the bottom.
That raises a profound question of fairness. At the same time, the House approach would mean a revenue loss to the state pegged at $302 million over the next two years. That’s the kind of choice that could end up depriving the state of revenue it needs to keep its public school classrooms adequately staffed, to properly fund community colleges, to keep university tuitions from continuing their rapid rise. A budget not so starved for revenue also could do more to address woeful shortcomings in the state’s mental health system, just to pick one area where services important to thousands of vulnerable people need more support.
When it comes to the implications for state services across the board – services that are essential if North Carolina is to do right by all of its residents, no matter where they stand on the economic ladder – the Moral Monday demonstrators know the score. For good reason, they also see a callous indifference toward the racial prejudice that can infect the criminal justice system. That indifference was on display with the General Assembly’s move to repeal the final vestiges of the Racial Justice Act, a law meant to guard against the possibility that race discrimination would be a factor in sentencing someone to death.
Following in the Senate’s footsteps, the House on June 5 agreed to scrap the law, which last year already had been significantly narrowed. Sponsors declared their desire to see executions resume for the first time since 2006. Yes, most criminals on Death Row have done terrible things to innocent people. But making it easier for someone to show any racial bias in sentencing, and thereby have his punishment converted to life in prison without parole, has made for a fairer system. The repeal is unnecessary, vindictive and – as Rep. Rick Glazier of Fayetteville eloquently pointed out – blind to the realities of race discrimination that have yet to be purged from our society and our courts.
The Republicans who control both House and Senate claim to be paying little heed to the protests they’ve sparked. One reason, no doubt, is that they’ve set the boundaries of legislative districts so as to make many GOP lawmakers virtually immune from challenges at the polls. A special panel of judges is hearing a suit brought by civil rights groups and Democrats who claim that the redistricting process following the 2010 census targeted African-Americans in ways that illegally devalue their votes.
A high-profile consultant who helped engineer the new districts, Tom Hofeller, testified that yes, districts were drawn to boost Republican chances. That’s unfortunately par for the course, whichever party is in power. The issue is whether black voters’ rights were abused when they were packed into congressional and legislative districts with the intent of making adjacent districts more conservative. What resulted were districts with grotesque shapes, cutting across county and even precinct lines. From the Republican standpoint, they got the job done, helping the party cement its control.
Coupled with the party’s efforts to hold down the number of Democratic-leaning voters by curtailing early voting and requiring photo IDs, the redistricting strategy runs counter to the small-d democratic principles of maximum participation and transparency. People of good will, no matter their party alignment, should want to see those principles affirmed.
Racial justice revisited
May 30
The death penalty is troubling on many levels. Among them: The public must bear the extraordinary costs associated with death penalty trials and appeals. The penalty’s effectiveness in deterring other murders is ambiguous at best. There is no margin for the kind of errors that can result in a wrongful conviction.
But if capital punishment is to be on the books, as it is in North Carolina, then the entire process of putting people on trial for their lives must be scrupulously fair. Legislation now poised for final consideration in the General Assembly would sound retreat from that principle.
Four years ago, legislators took a bold step forward. They approved the Racial Justice Act, intended to minimize the chances that death penalty prosecutions and sentences could be tainted by racial prejudice.
A successful claim under the act would convert someone’s death sentence to life in prison without parole. Gov. Beverly Perdue signed the act into law over the objections of many district attorneys and conservatives impatient to see North Carolina’s informal moratorium on executions, in place since 2006, come to an end.
When state House and Senate majorities tilted to the right after the 2010 elections, the so-called RJA was targeted for scuttling. Perdue vetoed one such effort. What emerged from the fray last year was a revised law dramatically narrowing the original law’s scope. But a key concept survived, even if in weakened form: In trying to show that the handling of their cases was influenced by racial bias, accused or convicted killers can present statistical evidence of such bias.
The statistics must be drawn from the area where the case arose and must be bolstered by other evidence, but a judge is allowed to consider them. An inmate thus can present an analysis of court records indicating that a certain prosecutor, for example, makes a habit of excluding a disproportionate number of qualified black residents from juries, or that he tends to seek the execution of black defendants at a higher rate than white defendants accused of similar crimes. Used in tandem with anecdotal evidence drawn from a defendant’s own case, a statistical pattern of discrimination could help paint a full picture of what that defendant was up against as he fought the charges against him or tried to avoid execution.
It’s of course true that most people charged with first-degree murder did in fact kill someone. But that doesn’t give the state a license to treat blacks more harshly than whites in trying to prove charges that may indeed have been lodged against a person who was innocent, or in seeking the death penalty.
Now even the modest and common-sense safeguards of the scaled-back RJA hang in the balance. The Senate has approved a bill that would prevent defendants from using statistics in attempting to show they were discriminated against. On May 29, S.B. 306, http://www.ncleg.net/Sessions/
Rep. Paul Stam of Apex, the House speaker pro tem, helped argue the case for Goolsby’s bill during the subcommittee meeting. He noted that anyone who might now make a claim under the RJA would still be entitled to multiple appeals and motions for relief in the state and federal courts. And the state and federal constitutions still would shield that person from deliberate racial discrimination in jury selection and in sentencing, Stam contended.
It’s a glorious thing that Americans have these protections. But in a state and country where racism was so embedded that black people within living memory were treated under the law as inferior beings, it’s naïve to think that the promise of equality before the law always holds.
Countering Goolsby and Stam during the discussion were Reps. Mickey Michaux of Durham and Rick Glazier of Fayetteville. Even though almost all of the state’s 156 condemned inmates, irrespective of race, have filed claims under the RJA, Michaux said judges could be trusted to weed out claims lacking substance. Indeed, what’s wrong with letting judges review these cases to see if death sentences might have been influenced by race prejudice?
Glazier brought a historical perspective. He said that racial discrimination, especially in jury selection, “has marred the criminal justice system for decades.” To eliminate all vestiges of the RJA, Glazier said, would be to ignore clear evidence of such discrimination in death penalty cases – evidence that nevertheless can be hard to document via conventional legal appeals.
“If this bill passes,” he said, “our legacy will be that we had from the truth.” It doesn’t require sympathy for people who may well have committed horrible crimes to want to see North Carolina’s justice system continue down the road toward colorblind fairness and impartiality.
S.B. 306 includes another provision meant to make it easier for North Carolina to resume executions. It would prevent the boards that set professional standards for physicians, nurses and pharmacists from disciplining someone who assisted in giving a lethal injection. This is an unwise intrusion on the authority of those boards to decide what sort of conduct is ethically proper, all in the name of carrying out a penalty that carries large risks of injustice.
The N.C. Council of Churches opposes the death penalty as a matter of principle, rooted in concern for the sanctity of life and a belief that taking life should not be the state’s prerogative. Life in prison with no chance of parole is a sentence that shields the public from dangerous criminals while leaving open the possibility that miscarriages of justice can be corrected. When S.B. 306 comes before the full House, members would do well to remember that what’s left of the Racial Justice Act is a very limited version of the original law. Keeping it in effect would be a modest gesture toward making sure that the death penalty, so long as it remains an option in North Carolina, at least is applied in a way that as much as possible takes race off the table.
Senators Choose to Cut
May 23
The North Carolina General Assembly has no more critical task than enacting budgets that set state government’s scope and mission – programs to serve the public that must be financed with money from taxpayers. How much to spend, and where? Who pays? As they answer those questions, legislators showcase their priorities and values.
This year, the first proposed budget to be approved comes from the state Senate. For those of us concerned about how a budget helps meet the needs of ordinary people – and especially people struggling with poverty and lack of opportunity — the hope has to be that at least some of the Senate’s poor choices will be revisited and remedied when the House and Gov. Pat McCrory have their say.
Senators passed their budget bill on a 33-17 party-line vote (Republicans in favor, Democrats opposed). It’s almost shocking that the bill’s supporters seemed to signal their agreement with Sen. Bob Rucho of Mecklenburg County, who declared during May 22 debate that a Democratic opponent, Sen. Josh Stein of Raleigh, “wants to make everybody dependent on government” via excessive spending that saps the incentive to work. What a cynical view of the many contingencies faced by people trapped in desperate circumstances beyond their control.
Stein sought to pull the reins on the bill’s most problematic feature – a downward adjustment in the money available for spending that would total $770 million over two years. The adjustment would clear the way for tax changes yielding less revenue even while increasing the burden on typical lower-income taxpayers.
If Stein’s amendment had passed, $770 million would have been restored to the two-year spending plan. That would spare 4,000 or so teacher assistant jobs that the Senate would wipe out, as well as some regular teaching jobs to be lost as class sizes are allowed to grow. It would have funded rural and minority economic development programs now on the chopping block. But the controlling bloc of senators decided that the tax cuts they favor were more important.
As the debate unfolded, outnumbered foes of the budget bill rose to highlight the needless damage it would do. “Your justification for gutting so much of what this state has been about makes no sense,” said Sen. Dan Blue of Raleigh. “We have $770 million that’s not appropriated and this says you can’t spend that. … There was a choice.”
The choice, Blue reminded his colleagues, means less help for second- and third-graders whose teachers won’t have assistants. It means larger public school classes and higher tuition for community college students. It means yet more spending cuts for the public universities. It means a less effective judiciary as the state’s innovative drug courts are scrapped along with several Superior Court judgeships.
Blue noted that while the bill’s backers claim they want to fix problems with Medicaid, which serves the poor and disabled, the budget “ensures that many rural hospitals will fail.” Health care in rural communities would become even spottier.
And speaking of Medicaid, the Senate majority remained irrationally and hurtfully opposed to expanding that program to cover an additional 500,000 lower-income North Carolinians under the federal Affordable Care Act.
Sen. Martin Nesbitt of Asheville, the Democratic leader, proposed a budget amendment to carry out the expansion, noting that it would be 100 percent federally funded for the first three years. He said the change, besides improving access to health care for all those people, would create 23,000 jobs, mostly in hard-pressed rural areas, and mean a net gain in the budget of $68 million. Senators who were worried about the state getting stuck with long-term costs — but apparently not so worried about folks missing out on health care in the meantime – shot Nesbitt’s proposal down. Again, the vote was strictly party-line.
Nesbitt allowed himself to have the last word among the budget bill’s opponents. “It’s about choice and it’s about priorities, and $770 million being taken off the table” for tax changes that will tend to benefit the well-off, he said. And circling back to the charge leveled by Sen. Rucho, that advocates of more spending want to lock in a sense of dependency on government, Nesbitt laid down a powerful rebuttal.
“Children are dependent, if they’re poor,” he said. “They’re dependent on us for medical care. People do depend on us.” In schools, he said, “Kids on the margins need individual help. They need personal attention.”
“Now is the time to take care of these institutions that people depend on – public schools and health care,” Nesbitt said. “We’re going to be left with all these uninsured people and no way to take care of them. Health care for people is not fluff and fancy stuff – it’s a necessity. You’ve taken that $770 million to do something else with, and put these other things aside.”
Sen. Phil Berger, the Republican leader as Senate president pro tem, summed up the case for the proposed budget by saying that it would have North Carolina live within its means while “taking care of people who we need to take care of.” To which one could say, some of them, at least.
Berger also said the Senate’s budget would allow taxpayers relief “from what are without a doubt the highest taxes in the Southeast.” That’s a fine goal – provided that enough revenue is still coming in to advance other goals involving education, health care and the overall broadening of opportunities for North Carolinians to thrive. And provided as well that tax burdens remain fairly distributed according to ability to pay.
Berger has promoted a tax package that would reduce personal and corporate income tax rates while extending the sales tax to cover many services as well as food and medicine. Legislation to carry out those changes has yet to be introduced – perhaps a sign that the package’s supporters know they’re trying to make a difficult sale. The social justice imperative here is clear: Don’t shift the costs of government toward those of lesser means while cutting the very programs that help them maintain hope of better days to come.
