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Everyone knows a recession is coming. What we don’t know is how bad it will be

The (relatively) good news: After the standoff between the legislature and Governor Cooper over the budget last year, the state is sitting on about $2.5 billion.

Less good: A legislative economist predicts revenue will fall by $1.5–$2.5 billion in the 2020–22 fiscal years.

Bad: The North Carolina Chamber thinks a quarter of the state’s businesses have closed, and 40 percent of the ones that remain open might not make it much longer. It’s not at all clear how many of them will reopen once the stay-at-home order ends, especially in the low-margin hospitality sector.

What it means: More closures mean fewer businesses paying taxes and more unemployment; lower incomes mean fewer people going out to restaurants, which means fewer food and beverage taxes. In other words, less money coming in and more money going out.

→ THE FIX: Cooper’s office is talking about additional tax cuts, though it’s not clear how much the state can move the needle in the face of what’s likely to be 20 percent unemployment and a Great Depression-like GDP contraction. 

The problem: More tax cuts mean less revenue. By constitutional mandate—not a particularly smart feature, but here we are—the state has to balance its budget. So the less money we bring in, the more we have to cut. Where will the money come from? 

→ THROWBACK THURSDAY: Until 2013, North Carolina had a graduated income tax, meaning rich people paid a larger percentage of their incomes in taxes than middle-class and poor people. The Republicans changed that, instituting a flat tax that benefited the wealthy and, well, not so much anyone else. In 2018, they put an amendment on the ballot—and voters approved it—capping the income tax rate at 7 percent.

Why’s that bad? If the choice becomes, say, gutting education funding or raising income taxes, a lot of us will favor raising taxes. But because of that tax reform—which all eliminated deductions and broadened the regressive sales tax—we can’t raise taxes on the wealthy without harming the poor, who are going to suffer the most during the pandemic and the recession, even though the wealthy are the ones most likely to make it through this thing unscathed. And because of the new tax cap, we couldn’t raise the rate more than 1.5 percent on rich folks even if we reverted to a graduated system. 

In other words, we’ll have little choice but to cut. And it’s not like we spend a lot to begin with. 

By the way: We’re one of just two states to have an income tax cap in our constitution. The other is Georgia.


Wisconsin’s disastrous election on Tuesday raises an obvious question: Is it possible to hold free and fair elections in the age of social distancing? Elizabeth Warren thinks so. On Tuesday, the Massachusetts senator released a plan that would implement universal vote-by-mail and block states from removing most voters from registration rolls since social distancing guidelines have made it difficult to reregister.

“In this moment, when peoples’ lives and livelihoods are on the line, it’s powerfully important that we protect our right to hold government and elected officials accountable at the ballot,” Warren told Mother Jones. “What’s happening in Wisconsin is another clear signal to Congress that it must immediately pass much-needed reforms and equip states with the funding they need to protect the health and safety of voters, ensure our elections proceed during this pandemic, and secure our electoral institutions for the long haul.” 

Trump wants nothing to do with Warren’s plan, or with voting by mail. “Republicans should fight very hard when it comes to state wide mail-in voting,” he tweeted Wednesday. “Democrats are clamoring for it. Tremendous potential for voter fraud, and for whatever reason, doesn’t work out well for Republicans.” 

Trump votes by mail. 

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The newsletter is sponsored this week by Village Hearth Cohousing, a 55-and-up Durham cohousing community for the LGBTQ community, allies, and friends that will open in mid-May. They’ve brought together wonderful people from all over the country, and they’ve only got four homes left. Would you like to join them? Learn more about Village Hearth and whether it could be right for you or someone you love.  

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