More About Erica Williams

Erica Williams

Erica Williams joined the Center in August 2009 as a Policy Analyst with the State Fiscal Project

Full bio and recent public appearances | Research archive at CBPP.org


More Time Unlikely to Fix Kansas’ Poor Strategy for Growth

July 9, 2014 at 1:35 pm

Heritage’s Stephen Moore argues that Kansas’ tax cuts, which have led to deep revenue declines that will make it harder for the state to invest in education and other drivers of long-term prosperity, just need more time to boost its economy.  But that’s not what proponents argued in 2012, when the legislature enacted the first round of deep income tax cuts.  Governor Sam Brownback said then that the tax cuts (designed by Arthur Laffer, a frequent collaborator with Moore) would be “like a shot of an adrenaline into the heart of the Kansas economy.”

We don’t know whether Kansas will under- or out-perform the U.S. economy in coming years (although the state’s own legislative researchers project slower growth for Kansas relative to the United States in 2015).  But recent experience and academic studies suggest that Kansas hasn’t improved its chances of economic growth by cutting taxes and may well have damaged them.

Our examination of how the big tax-cutting states of the past two decades have fared found that tax cuts aren’t a particularly fruitful strategy for growth:

  • Three of the six states that enacted large personal income tax cuts in the years before the Great Recession of 2007-2009 saw their economies grow more slowly than the nation’s in the following years.  The other three states enjoyed above-average growth, but they are all major oil-producing states that benefitted from a sharp rise in oil prices after the tax cuts.
  • Similarly, the five states with the biggest tax cuts in the 1990s created jobs during the next economic cycle at one-third the rate of other states, on average.  The biggest tax-cutting states also had slower income growth.

Among economic studies, there’s no consensus on the impact of state taxes on economic growth.  Some studies find that higher taxes hurt growth, some find that higher taxes help growth when they finance higher-quality education and better infrastructure, and most find that tax levels have only a minor impact either way.

Other states considering deep tax cuts in pursuit of economic growth should note those facts, as well as the damage that deep tax cuts have already done in Kansas.

Do’s and Don’ts for Stronger State Economies

June 24, 2014 at 1:24 pm

A number of proactive fiscal policies can prime states for a more prosperous future, our updated guide explains.  They include:

  • Target economy-boosting investments.  Research shows that investing in services like education, transportation, and health care promotes economic growth and job quality in the long run.  Maintaining and improving these services requires resources.  States should scrutinize existing spending to find savings, raise revenue when necessary, and bring their revenue systems in line with a 21st century economy, such as by broadening the sales tax base to include more services.
  • Improve fiscal planning.  Strong fiscal planning helps states determine the resources needed to sustain, beyond any one budget year, investments critical to economic growth. That’s why policymakers should budget for the future:  lay out a clear roadmap, ensure that budget impact analyses are credible, and create mechanisms to trigger needed mid-year course corrections.
  • Help struggling families.  Years after the official end of the Great Recession, millions of Americans continue to struggle.  Helping people meet basic needs and move up the economic ladder is critical to a state’s long-term success.  States can do this by protecting and expanding Earned Income Tax Credits, which help low- and moderate-income working families keep more of what they earn to pay for things that help them stay on the job, like child care and reliable transportation. States also should properly fund their unemployment insurance systems and protect supports for the neediest families through Temporary Assistance for Needy Families (TANF).

On the flip side, our guide also recommends that states:

  • Avoid ineffective strategies and gimmicks.  Several states have enacted or considered deep income tax cuts in the name of promoting economic growth.  But these tax cuts typically provide the largest benefits to high-income people, while doing little to nothing for everyone else.  Bad choices in good economic times, these tax cuts are even more unwise when revenues have just barely surpassed pre-recession levels.  The result is less money for services that are fundamental to economic growth, as well as increasingly skewed tax systems in which the lowest-income people pay the biggest shares of their incomes in taxes.

Several States Considering Doing More for Working Families

February 11, 2014 at 3:56 pm

A number of states are considering creating or expanding earned income tax credits (EITCs), Pew Stateline explains, an idea that has received support from both sides of the aisle.  That’s great news for low- and moderate-income working families.  It’s also good for the nation’s future economic prospects since state credits leverage the federal EITC’s well-documented, long-term positive effects on children.  As our recent paper explains, state EITCs:

  • Help working families make ends meet.  Refundable EITCs provide low-income workers with a needed income boost that can help them meet basic needs and pay for the very things that allow them to work, like child care and transportation.
  • Keep families working.  EITCs help families that work get by on low wages, which helps them stay employed.  They are also structured to encourage the lowest earning families to work more hours. That extra time and experience in the working world translates into better opportunities and higher pay over time. Three out of five who receive the credit use it just temporarily — for just one or two years at a time — while they get on their feet.
  • Reduce poverty, especially among children.  Millions of children in working families live in poverty, and millions of families with incomes modestly above the poverty line have difficulty affording food, housing, and other necessities.  The federal EITC is the single most effective tool the nation has for reducing poverty among working families and children.  It now lifts about 6.5 million people — half of them children — out of poverty each year.  State EITCs build on that record.
  • Have a lasting effect.  Low-income children in families that get additional income through programs like the EITC do better and go farther in school.  And children in low-income families that get an income boost during their early childhood years work more and earn more as adults.  This is good for communities and the economy because it means more people and families on solid ground and fewer in need of help over the long haul.

That’s why twenty-five states plus Washington, D.C. have EITCs (see map).  Last year, Colorado and Ohio created EITCs while Oregon and Iowa improved theirs.  As a slowly improving economy boosts the fiscal outlook for states, lawmakers should follow suit and adopt or expand EITCs to help working families and children recover, too.

North Carolina Lawmakers Chart the Wrong Course

May 23, 2013 at 4:16 pm

North Carolina’s Senate yesterday passed a budget that undermines key services, including education.  This is one more step in the wrong direction for the state’s policymakers, who have spent this legislative session debating how much to cut taxes for the wealthy, how much to raise taxes on everyone else, and how massive a hole to blow in the state’s funding for schools and other services.

Under the banner of tax reform, both the House and Senate have proposed plans that center around a massive income tax cut that would mainly benefit the rich and corporations.  They’d pay for the cut, in part, with a sales tax expansion that would make the overall state tax bill fall more heavily on low- and middle-income households.  This tax shift would further exacerbate inequality in a state that already has a wide gap between the rich and the rest.  For example, poor and middle-class North Carolinians saw their incomes drop between the late 1990s and mid-2000s, while upper-class household incomes rose (see chart).

These plans come with hefty price tags.  In addition to raising taxes on low- and middle-income households, the Senate’s tax plan would open up a new budget shortfall of over $1 billion within three years.  The House plan would produce a $1.2 billion shortfall over five years.  That means that key services will take a hit.

Indeed, the Senate’s budget eliminates class size limits for grades K-3, lays off teachers, and cuts thousands of pre-k slots available to at-risk children.  This would occur in a state that over the course of the recession cut its per-student funding for K-12 education 14 percent below pre-recession levels, after adjusting for inflation.  The state also cut its higher education support per student by 15 percent over that time.  As a result, tuition at the state’s public four-year universities has jumped an average of 31 percent per student.

The harmful tax and spending ideas don’t stop there.  The legislature also is looking to eliminate the state’s estate tax — a tax that just 23 of the wealthiest estates paid in 2011 — after slashing benefits for unemployed workers and enacting legislation that scraps the state’s Earned Income Tax Credit, which helps working families with children get on a path to the middle class.

How did the legislature win public support for raising taxes on low- and middle-income households while cutting taxes for the rich and undercutting services that residents and businesses want and need?  Well, they didn’t.  A recent poll shows a large majority oppose the details of the Senate and House tax plans.

North Carolina Should Reinstate Its EITC

May 13, 2013 at 4:04 pm

The Tax Foundation’s Elizabeth Malm recently expressed concern on an issue about which we have already weighed in — North Carolina’s decision in March to eliminate its Earned Income Tax Credit (EITC), which provides important support for low-wage working families.  Before we get to Malm, here’s what you need to know:

North Carolina ended the credit as of next year, which will mean a tax hike for 900,000 working households, most of them with children to support.  Adding insult to injury, policymakers also cut the credit for this, its last year on the books, from 5 percent of the federal credit to 4.5 percent, shrinking an already modest benefit.

I wrote in February about the harm that this action would cause to North Carolina’s struggling working families — at a time when the state had just slashed its unemployment benefits and while lawmakers were considering eliminating the estate tax that’s levied on just 23 of North Carolina’s wealthiest estates.

At a recent debate, Malm described regressivity as “a very important concern” and cited the EITC as “one way that we can mitigate the regressivity concerns that do come up when we think about reducing the income tax.”  Malm and CBPP Senior Fellow Jared Bernstein agreed that North Carolina should revisit its decision to eliminate the EITC.

Meanwhile, the state will likely eliminate its estate tax, and lawmakers are considering major tax plans that would force low-income families to pay a greater share of their income in taxes while reducing the taxes of the wealthiest North Carolinians.  They should rethink tax cuts for the wealthy, especially when they come at the expense of tax credits like the EITC that help working families support themselves.