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Discretionary-fund cuts, not tax cuts, could impact state most, group says

As congressional representatives convene to address the looming expiration of tax cuts and the phase-in of $1.5 trillion in discretionary spending cuts, a North Carolina watchdog group is concerned that potential cuts to address the $4 trillion national deficit will have a significant impact on the state.

Unless extended by Congress, $5 trillion in tax cuts will expire in January, including tax rate reductions, tax breaks on dividend and capital gains income, payroll tax reductions and reductions in the estate tax.

Improvements to tax credits targeted towards the low‐ and middle‐income Americans will also expire in January unless extended, including the Child Tax Credit, the Earned Income Tax Credit, extended unemployment benefits and the American Opportunity Credit that assists college students.

Cuts in discretionary funds to states may have a greater impact on North Carolina than the tax cuts, according to information released by the Budget and Tax Center – a project of the N.C. Justice Center — this week.

Only 140 North Carolina families would be affected by cuts to the estate tax, according to the group’s analysis.

Only 1.4 percent of North Carolina families have incomes greater than $250,000 and they would only see a tax increase on the portion of their income above that threshold. Their income below $250,000 would still receive a tax cut, according to Allan M. Freyer, Public Policy Analyst for the N.C. Budget and Tax Center.

On the other hand, discretionary cuts will affect more low- and middle-class North Carolinians, he said.

Budget and Tax Center staff said recent studies by the U.S. Senate Appropriations Committee show nearly 450 Head Start jobs across the state will be lost, 4,000 parents will lose childcare subsidies, 6,000 teachers will lose their jobs and 11,000 fewer workers will be trained for future job opportunities.

It is still unknown where, specifically, those job and service cuts could occur.

Although the tax cut expirations and spending cuts are scheduled to begin taking effect in January 2013, they will only have a gradual impact on the state’s economy, according to Ellen Nissenbaum, senior vice president of government affairs at the nonpartisan Center on Budget and Policy Priorities in Washington, D.C.

Both discretionary cuts and the tax cut expirations phase‐in over months and years and can be replaced by Congress at any time.

So how likely is it that the nation is headed for that slippery slope?

“Some assume that if the nation goes over that cliff, it will stay over the cliff,” Nissenbaum said. “It’s true our economy is headed toward a slope, but if Congress doesn’t reach an agreement during the lame duck session, there is a strong likelihood that an emergency session would be called in January to immediately work out an agreement.”

Nissenbaum also said that Congress has no intentions of cutting Social Security or Medicare for current recipients. Nor is there a plan to enact any additional cuts to national defense, she said.

Want to know more?

A community forum on “Building a Stronger North Carolina” will be offered by staff from the Budget and Tax Center and United Way of North Carolina Dec. 11 at the Enka campus of Asheville-Buncombe Technical Community College.

Attendees will learn about ways to get engaged in issues that will affect the future of the state.

Issues to be discussed will include the impact of current economic conditions on working families and the state budget, updates on key policy solutions that support low-income workers and their families, such as a balanced approach to the budget and the Earned Income Tax Credit, and how the state budget directly affects areas such as education, health care and financial stability.

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Peggy Manning is a contributing reporter for Carolina Public Press. Contact her at

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