For the first time in over a century, the Republican Party has found itself in control of the North Carolina governorship and both chambers of the General Assembly. As a result, it has not taken long for the actions of our state legislators to make national headlines.
In a recent editorial in the New York Times, “The Decline of North Carolina,” the Editorial Board stated the following:
“North Carolina was once considered a beacon of farsightedness in the South, an exception in a region of poor education, intolerance and tightfistedness. In a few short months, Republicans have begun to dismantle a reputation that took years to build.”
It took N.C. Gov. Pat McCrory two days to respond to the editorial with a letter to the editor in which he opined:
“The North Carolina I’m leading today is on a powerful comeback. After just six months of problem-solving leadership and making the tough decisions that we were elected to do, there is significant movement on vital reforms to tax policy, energy, education, economic development and transportation.”
Since April 29th, however, thousands of North Carolinians – led by The Reverend Dr. William Barber II of the N.C. chapter of the NAACP – have gathered in Raleigh to protest Gov. Pat McCrory and the legislature’s policies.
Most controversial of these have been measures to cut unemployment benefits, reject Medicaid expansion, repeal the earned income tax credit and reduce spending in education. Though these measures are beneficial in some regards, they are also highly consequential in their effects on many of our state’s citizens.
Reduction in Unemployment Benefits:
In 1951, Gov. Kerr Scott signed legislation that lengthened the provision of unemployment benefits to 26 weeks. A new law – S.L. 2013-2, which took effect July 1st – reduces the length of benefit provision from 26 weeks to a sliding scale of 12 to 20 weeks, reduces the maximum unemployment benefit provision from $535 to $350 per week and eliminates benefits for workers who accept a family or medical leave of absence. This law is described by the legislature as an effort to repay the $2.5 billion the state owes the federal government for previous benefits. Though enacted for a noble reason, the law reduces unemployment benefits for 700,000 workers and eliminates benefits for another 100,000. In a state with the fifth-highest unemployment rate in the nation, however, it sees difficult to justify such legislation.
Rejection of Medicaid Expansion:
A provision in the recently enacted Affordable Care Act (ACA) qualifies adults with incomes up to 138 percent of the federal poverty threshold for Medicaid, since the program is currently available only to parents, children, seniors and the disabled. The act further deems that a state noncompliant with Medicaid expansion would lose federal funding for the program. In National Federation of Independent Business v. Sebelius, however, the Supreme Court prohibited the federal government from denying Medicaid funding to states that reject expansion. The ACA also requests that states establish health benefits exchanges for uninsured individuals through measures such as employer-provided insurance. In the case that a state is not willing to establish an exchange, the federal government would do so on its behalf.
S.L. 2013-5, however, affirms that North Carolina will not expand coverage to the over-500,000 uninsured adults residing within the state and prevents state agencies from establishing a health benefits exchange or participating in a federal-state exchange partnership without the approval of the General Assembly.
In North Carolina, the cost of Medicaid per enrollee is over $6000 – a cost substantially higher than the national average. This – along with state legislators attributing the inefficiency of the program to impending budget cuts to several government sectors, including the UNC system – leads many to believe that the General Assembly made the right decision. Even so, rejecting Medicaid expansion has imparted dire consequences upon a third of all state hospitals, which will likely have smaller operating budgets in years to come. Additionally, the North Carolina Justice Center reported earlier this year that the legislature’s decision will divert 25,000 jobs and $15 billion in federal funds from the state within three years.
In 1921, Gov. Cameron Morrison enacted a progressive income tax rate that assisted the state in its development of roads, infrastructure and the university system, thereby ensuring that North Carolina would lead the South in economic advancement for decades to come. A rewrite of the state’s tax code, however, would reduce personal and corporate income taxes, eliminate the estate tax, raise the sales tax and expand it to encompass currently untaxed items.
This session, House and Senate leaders have introduced their own versions of tax reform: H.B. 998, which would reduce personal income tax, corporate income tax and business franchise tax rates while expanding the sales tax; S.B. 677, which would also reduce the personal and corporate income tax rate; and S.B. 394, which would reduce personal income and corporate tax rates, replace the business franchise tax with a lower business privilege tax and reduce the sales tax rate while expanding its base.
Following negotiations, the House and Senate ratified H.B. 998 in party-line votes of 77-36 and 32-17, respectively. The final version of the bill, soon to be signed into law, reduces the state’s three personal income tax brackets — 6, 7, and 7.75 percent — to a flat rate of 5.8 percent in 2014 and 5.75 percent in 2015, reduces the corporate income tax rate from 6.9 percent to 6 percent in 2014 and 5 percent in 2015, eliminates the tax currently levied on estates with values greater than $5.25 million, and expands the sales tax base on electricity, movies, and some service contracts.
One effect of the bill is that the government will have $2.4 billion less to spend over the next five years. Additionally, a family of four with an annual income of $40,000 will save $100 per year, while those earning $150,000 and $250,000 would save $750 and $2,400 per year, respectively. Though the upper-middle class will save more money than the low- and middle-class and the government will have less money to spend in the long term, Gov. McCrory contends that such reform will improve the state’s tax competitiveness ranking from 44th in the nation to 17th.
Repeal of Earned Income Tax Credit:
In 2007, Gov. Mike Easley, along with the support of the Democrat-majority legislature, enacted legislation establishing the Earned Income Tax Credit, which provided a refundable tax credit to nearly 900,000 low-income workers. Altogether, these workers received refunds of about $105 million. Recently, though, the House introduced a repeal of the tax credit that was soon enough signed by Gov. McCrory as S.L. 2013-10, thereby ensuring that hundreds of thousands of North Carolinians will not be able to receive such credit after December of this year.
Reduction in Education Spending:
With previous delays in concurrence on a tax proposal, neither of the two chambers were able to pass their budgets before the current fiscal year began on July 1st. Though it is uncertain whether a final budget will be passed prior to the expiration of a stop-gap spending measure on July 31st, it is worth taking into consideration the various proposals that make up both chambers’ budgets.
Firstly: In 1941, Gov. Mel Broughton signed into law a piece of legislation that granted public school teachers with a master’s degree or higher a 10 percent pay increase. Though the Senate’s budget proposes the elimination of this pay increase, the House proposes its preservation. In a state with the 46th lowest average salary for teachers, such a measure will likely persuade many of the state’s instructors to seek employment in other states.
Secondly: During Gov. Jim Hunt’s first two terms in office – between 1977 and 1985, two programs, the Primary Reading Program – which assigns a teaching assistant to every classroom from Kindergarten through the third grade – and the Smart Start Program – an early childhood initiative in which the government and local organizations team up to assist young children who are unprepared to learn at their grade level – were introduced. Gov. McCrory and the Senate’s budget proposes the elimination of teaching assistants in the second and third grade, but maintains them in Kindergarten and first grade. Such a decision will undoubtedly affect school districts in which class sizes warrant the need for teacher assistants in primary grade levels. The Senate also wants to hand responsibility of Smart Start over to the Division of Social Services – a transition that would reduce funding for the program by a third, despite Gov. McCrory retaining current funding for the program in his proposed budget.
Finally: In 1986, the General Assembly proposed the Teaching Fellows program in an effort to persuade students to pursue a career in public education. The program provides college scholarships to exceptional high school students who agree to teach in North Carolina public schools for a minimum of five years. Since the program’s inception, thousands of students have taken advantage of such an opportunity. Currently, there are 4,443 teaching fellows working in 99 of the state’s 100 counties. Due to the legislature’s gradual elimination of funding, the program is set to end by 2015. Though the House budget would reinstate funding for the Teaching Fellows, the Senate’s budget would not do so. Eliminating the program will make it much more difficult for aspiring teachers to fund their college educations.
Gov. McCrory concludes his letter to the editor with the following statement:
“My reforms have stepped on the toes of the political right and the left who are vested in the old ways of doing business. But in my 14 years as mayor of Charlotte, I learned that it didn’t matter whether a good idea came from a Republican or a Democrat. What mattered was whether it solved a problem and did so at a cost taxpayers could afford. (…) This focus on pragmatic problem-solving is now fueling North Carolina’s comeback to prosperity as well.”
Cuts to unemployment benefits, the rejection of Medicaid expansion, the repeal of the earned income tax credit and a reduction in education spending, however, truly beg the question, “Is North Carolina really on a comeback to prosperity?”
Ultimately, the answer to that question is up to you.