Income tax cut costs will rise to more than $1 billion by 2016, raising serious concerns about whether the current budget negotiations are putting forward a fiscally responsible path to meet the priorities of our state. Before the budget is finalized, legislative leadership must consider this newly available information that the tax cuts will cost more than originally estimated and move immediately to stop further revenue losses in 2015.
Fiscal Research Division revised estimates this week based on new data just released from the Internal Revenue Service on the incomes and taxes paid by North Carolinians through the personal income tax in 2012.
The higher cost of the tax plan is likely the result of the greater benefit that the tax plan has for high wealth taxpayers who have seen their incomes recover more quickly out of the Great Recession. Prior estimates by Fiscal Research Division were based on IRS data from earlier years thus not accounting for this income growth and the latest available information on the costs of deductions and credits. It is clear not only that the rate reductions are having a larger than anticipated effect but also that we should not expect that base-broadening impacts will be sufficient to hold those revenue losses in check.
The fundamental issue is that the income tax cuts cost more than originally projected and require policymakers to take immediate steps towards stopping further revenue losses with rate reductions automatically scheduled to go into effect in 2015.