This week saw the release of not one but two reports from the N.C. Justice Center’s Budget & Tax Center looking at this state’s relationship to its least advantaged citizens. North Carolina’s Greatest Challenge: Widespread Struggles Remain a Grave Threat to Economic Growth and Us All, released April 1, talks about the state’s increasing poverty levels and income inequality. The second, Tax Credits for Working Families Deliver Broad Benefits to the State, released April 2, details how the Earned Income Tax Credit the Legislature eliminated in the course of cutting taxes for the states wealthy helped those at the lower rung of the socioeconomic ladder.
In Greatest Challenge, we learn that even as the national economy has climbed out of the Great Recession, North Carolina’s poverty rate has either climbed or held steady year-over-year between 2007 and 2013, when it stood at 17.9 percent, down slightly from a 2012 high of 18 percent. North Carolina has the 11th highest poverty rate in the country, and the 12th highest rate of child poverty and what’s called deep poverty. The effects are most heavily felt by Hispanics, American Indians and African Americans, whose poverty rates are well above the state average, while the average poverty rate for whites is just 12.3 percent.
“The benefits of the recovery and economic growth have been increasingly concentrated among high-income households rather than middle- and low-income North Carolinians,” writes Tazra Mitchell, a public policy analyst at the BTC. And the rural areas are suffering most—in fact, the 45 poorest counties are all rural, which isn’t that surprising considering that 85 percent of the state’s counties are rural and rural areas have been hit hard by the decline of tobacco and manufacturing—though poverty is creeping into metropolitan areas at an increasing rate.
The geography of poverty at the county level reveals the bleak economic reality that many rural residents face. In 2013, the highest poverty rates were in 45 rural counties— up from 31 in 2012. Urban areas, by contrast, are fueling the state’s economic recovery. This widening rural-urban divide is driven by job losses in rural areas, long-term changes in the state’s economy, and inadequate levels of targeted state aid to economically-stressed areas.
Scotland County in the rural and southern part of the state has the highest poverty rate. One in 3 residents lived in poverty and found it difficult to put food on the table and make ends meet in 2013. Among urban counties, Forsyth County in the Piedmont Triad had the highest poverty rate, with more than 1 in 5 residents living in poverty and struggling to afford the basics. At the opposite end of the spectrum, rural Camden County and urban Wake County had the lowest poverty rates, with 1 in 10 residents living in poverty.
“Almost all of the economic growth is growing in the metropolitan areas,” Mitchell told me Thursday night. “The little bit of economic growth—economics gains are bypassing people who live in poverty. Middle-class incomes have actually declined since the recession hit.”
And during the recession, Mitchell notes, the poor became punching bags for a new Republican majority bent on cutting taxes and gutting spending, all in the name of making the state more “business friendly.” The EITC got the ax as part of the Republicans’ tax-cut package. Unemployment benefits were eviscerated. Those tax cuts, Mitchell continues, “shifted taxes from the wealthy onto everyone else. It was almost a $1 billion loss—money that could have been invested.”
The EITC, established in 2007, was modeled after the federal tax credit, “one of the nation’s most powerful anti-poverty tools,” Mitchell wrote in the second report. “The benefits of the state EITC extended to the broader economy by promoting work and helping families afford things that make it possible to work, such as gas and child care. The tax credit also helped address how the state asks its lowest-paid workers to pay more as a share of their income in state and local taxes than its highest earners. Without the state EITC, North Carolina’s tax system now asks nearly 1.75 times more from the bottom 20 percent of taxpayers as it does from the top 1 percent.”
For the 2013 tax year, more than 927,000 North Carolina families claimed the EITC. Their average credit amount that year was $109.
This is roughly equivalent to two tanks of gas to get to work, one week of groceries or one month of utility bills. In combination with the federal EITC, the state EITC provided significant support to allow families to meet basic needs, make emergency purchases, and pay down debt.
That $100.8 million the EITC elimination added to the state’s coffers pales in comparison to the nearly $1 billion drained by flattening the tax code (read: cutting taxes for the wealthy). And the state’s current projections estimate that revenues will come in more than $270 million below the budgeted amount, and wage growth is 1.6 percent lower than expected, according to State Rep. Cecil Brockman’s office. Which, of course, means more cuts are coming—to education, to transit, to anti-poverty programs.
North Carolina needs sensible, forward-looking policies that allow the state to rebuild what was lost following the Great Recession to create a more inclusive economy. But Governor McCrory is calling for just the opposite—austerity—by keeping the tax plan on the books and foregoing each year $1 billion that could be reinvested in core services such as early learning, public education, and public health. Total state investments under his 2016 fiscal year budget proposal would be 6.1 percent below pre-recession levels, adjusting for infl ation. This is in great contrast to our experience during the previous three economic recoveries. Spending did not dip after the 1981 and 2001 recoveries, and lawmakers restored investments to prerecession levels just three years after the 1990 recession hit. The governor’s 2016 fiscal year budget—which would be the eighth budget enacted since the recession hit—would fail to reach pre-recession spending levels.
On Thursday, Democratic lawmakers held a press conference to promote HB 27, which would restore the EITC, and unveiled HB 549, which would reestablish a higher tax bracket for those earning north of $1 million a year. The latter is likely a nonstarter; the former, however, might stand a chance, Mitchell says. “I can’t help but hope. The tax code is so bad for low- and moderate-income families. … There’s a chance if leadership is willing to listen. They deserve a hearing.”
But the problem is, for all the talk about jobs, there’s not a lot of talk about the poor, or of investments in the kinds of things that will actually make a difference—schools, better transit, local living wage ordinances and higher minimum wages, paid sick leave.
“I haven’t heard them talk about poverty,” Mitchell says. “So that’s the problem. They’re not talking about it. The policies are going to do nothing to reduce poverty.”