Cut Taxes, No Matter What
It’s that time of the year again. That’s right, state legislatures are drafting budgets, and the cries to cut taxes are being echoed throughout the land. Ironically, the generous stimulus funding from the federal government because of Covid has emboldened state politicians who otherwise would likely be facing deep deficits.
Politicians in the two Carolinas are poster children for the refusal to pay for basic state services. Somehow the obligation to fund vital programs seems beyond their comprehension no matter the political party.
The irony of the obsession with cutting state taxes in both North and South Carolina is that each already depends on the federal government to provide approximately one-third of its budget for basic services. This includes significant appropriations for health services, education and highways.
Neither state has seen fit to implement the expansion in Medicaid coverage authorized under the Affordable Care Act, even though approximately 10 percent of the residents in each state lack health insurance, primarily because they cannot afford private policies. Most of these people have low incomes but do not qualify for federal subsidies under the ACA.
But the crime is how many of those uninsured are children---nearly 300,000. In terms of percentage of children insured, the two states are tied at 33rd among the 50 states and the District of Columbia.
Why should any child be without health insurance coverage in America?
The failure to take advantage of federal funding for Medicaid expansion has had a negative effect on rural hospitals, already struggling to deal with growing urbanization and consolidation of health care facilities. Since 2005 eleven rural hospitals have closed in North Carolina and four in South Carolina.
Studies also have revealed that in states which have not expanded Medicaid, private health insurance premiums are approximately 2 percent higher than in those states that have. This impacts all residents, and while 2 percent may seem insignificant, the cost of health insurance premiums and deductibles eats up 8.3 percent of median household income in North Carolina and 9 percent in South Carolina.
Both states also have significant deficits in funding for education.
In terms of K-12 per student expenditures North Carolina ranks 39th among the 50 states and the District of Columbia. South Carolina is right behind, ranking 40th. Both spend in the neighborhood of $10,500 per student which is less than 80 percent of the national average.
With regards to teachers’ salaries the two Carolinas also trail most other states. South Carolina ranks 33rd, while North Carolina ranks 42nd. The difference in compensation is less than $2,000, but both states pay teachers less than 80 percent of the national average of $66,496.
Salary comparisons with teachers in other states is not the biggest problem for attracting and retaining teachers in the Carolinas. Many good college students who probably would make very effective teachers never consider the profession because the prospective compensation is not competitive with earnings available in other professions that require a similar level of education and preparation. Several studies have found that gap to be generally about 20 percent.
At the college level, the record of the two states is a bit mixed. North Carolina has kept tuition and fees at senior institutions fairly reasonable, an average of $7,228. South Carolina has allowed public institutions to impose tuition and fees averaging $12,497 annually, which amounts to more than 20 percent of median household income in the state. It is also the 11th highest in the US and more than $3,000 above the average for all states.
Students in both states are heavily burden with student loan debt. South Carolina is fifth in the US in the average amount owed in student loan debt, $38,700, while North Carolina is tenth with $37,900. Over 700,000 individuals in South Carolina owe approximately $27.5 billion. In North Carolina over 1.2 million persons owe $48 billion.
This overhanging debt is likely having an impact on housing access in the two Carolinas which is another area that should be receiving more attention from state legislators.
It is difficult to understand the budget priorities of the legislatures in either of the two Carolinas. Both states have obvious needs in critical areas. Neither state has burdensome taxes. According to the latest Tax Foundation data, per capita state and local taxes in North Carolina are $4,490 and in South Carolina they are $4,000, ranking the former 32nd among states and the latter 40th.
Still, legislators in both states are slashing individual and corporate income taxes.
North Carolina only recently managed to pass its first budget in four years. A GOP legislature had been stymied in its race to the bottom by a Democratic governor who was able to use his veto power to get some salary improvements for teachers. He was unable to reverse the 2013 decisions replacing the progressive individual income tax with a lower flat rate and cutting the corporate tax from 6.9 percent to 3 percent.
In fact, the final bill passed in November, makes additional reductions in both the individual income tax and corporate income tax. It also authorizes elimination of North Carolina’s corporate income tax entirely by 2030.
There appears to be a contest going on in South Carolina among the two houses of the general assembly and the governor to see who can craft the most outrageous assault on the solvency of state government. Following the governor’s lead, the South Carolina House on February 23, unanimously passed a bill reducing the state’s progressive individual income tax with five levels and a top rate of 7 percent to a more or less flat tax with only two levels and 6.5 percent and 3 percent rates. The projected cut would reduce state revenues by $600 million annually.
Not to be outdone, the South Carolina Senate is considering a proposal that would continue the progressive character of individual income tax but cut the top rate to 5.7 percent which would result in a loss of $900 million in annual revenue. In addition, the proposal would provide a one-time rebate to all taxfilers, costing an estimated $1 billion.
It is generally understood that most of the tax savings envisioned from the proposed tax cuts would go to the top twenty percent of taxpayers. Any resulting shortfall down the road will likely be made up for by raising South Carolina’s sales tax, 17th highest in the country.
Or the states could simply continue to ignore the needs of its most vulnerable citizens.