Editorial explains “sleight of hand” behind NC’s budget “surplus”

Tax shiftThe lead editorial in this morning’s Charlotte Observer offers a compelling explanation and critique of yesterday’s “April surprise” in which state leaders announced that North Carolina has eked out a 2% budget surplus. The bottom line explanation: the Great Tax Shift in which average folks are paying more and the rich and corporations are paying less. Here’s the Observer:

“News of a surplus is indeed cause for relief. But before GOP leaders dislocate their elbows in over-exuberant back patting, let’s look closer to see how they achieved it….

The returns are in. And the numbers don’t point to an expanding economy as the main cause of the huge swing from deficit projections to surplus. Instead, the memo [from the legislature’s Fiscal Research Division] noted that tax refunds dropped by 57 percent this year (not the 35 percent predicted). It was by far the biggest drop-off in 25 years.

Personal income tax collections surged, giving the state $375 million more than the staff expected. Some of that came from bigger collections in small business income. No surprise there, since tax reform killed the $50,000 business income exemption such establishments enjoyed.”

GOP leaders say lower tax rates will draw more corporations and jobs to the state. But the new-found surplus didn’t come from new-found corporations. Wage growth is expected to be 1 percentage point below forecast for the current budget year, the memo says, and withholding tax revenue is projected at 3 percentage points below forecast. Corporate income tax and franchise taxes moved up only slightly since the staff’s February budget projections.

That means surging collections from small businesses and individual taxpayers – not corporations – turned the deficit forecast into a surplus.”

The editorial closes this way:

“GOP leaders say refunds are shrinking because they made paycheck withholding more accurate. The state’s keeping less of your money through the year. Even if true, that doesn’t change the bottom line fact that personal income tax revenue has surged.

Make no mistake. We do believe the state needs more money for schools and other public investments. But its leaders are lifting money from everyday taxpayers’ pockets while seeking praise for supposedly putting more money in them.

And for that sleight of hand, perhaps they do deserve a round of applause.

A sarcastic one.”

Read the entire editorial by clicking here.


  1. LayintheSmakDown

    May 7, 2015 at 8:23 am

    I can vouch for the refund situation. In my own taxes and the ones I prepared this year the refunds and payments were much closer to zero than in the past.
    It is also good to see the liberals at the paper admit that collections surged. Everyone needs to remember that the best way to increase receipts is to lower taxes to more reasonable levels. This has been proven time and time and time again but liberals never seem to “get it”.

  2. dave

    May 7, 2015 at 9:54 am

    No offense, LAYINTHESMAKDOWN, but collections did not surge because taxes were lowered. Collections surged because the ultimate tax burden for the middle class, seniors, and small business owners went UP due to the elimination of tax exemptions.

  3. love my state

    May 7, 2015 at 10:36 am

    thanks dave…. you make much more sense than smak does.

  4. Lucinda

    May 7, 2015 at 5:13 pm

    Lowering taxes has never increased revenues and here’s proof:

  5. LayintheSmakDown

    May 8, 2015 at 10:57 am

    Tax collections surged because economic activity increased. You obviously have not paid attention to the fact that all got a decrease in their tax rate. The exemptions were taken care of by a lower rate as well.

    Here is a quick primer on the truth, with graphs so you simpletons can understand.

  6. Lucinda

    May 8, 2015 at 1:58 pm

    LSD, the Forbes article you reference is deliberately(?) misleading. The graph showing a correlation between tax rates and revenues Only tracks the top marginal rate, not all tax rates. In addition, just looking at that graph, this Simpleton can see that tax receipts rose as the top marginal rate rose in the period from about 1990 to 1993. And if, as the author claims, tax revenue rises as a result of lowering tax rates, why did receipts rise so dramatically between 1994 and 1998 when the top marginal rate stayed the same. I find it disingenuous that the author limits the data depicted in his graph to what seems to support his argument.

  7. Spike

    May 9, 2015 at 10:50 am

    To LAYINTHESMAKDOWN: Lower corporate taxes were supposed to “lure” jobs to the state. What manufacturer or other business has moved a plant or headquarters here in the last year? What business has even announced that they’re moving operations here? It’s obvious to me that you pay the bulk of your taxes in income tax and not payroll tax.

    INCOME taxes have decreased but PAYROLL taxes have increased. That means for the guy or gal who schlepps to a job, punches a clock and works a shift, their burden is higher. There is a huge difference in income and payroll taxes and the politicians never take note of that when they talk about lowering “taxes.” Everyone pointed out that the tax bill would make it so seniors couldn’t deduct medical bills and that would make their taxes higher but no Repuglican took notice before the bill was passed. Now we have a surplus and we’re going to “fix” the bill so seniors (a powerful voting bloc) get their deduction back. Why couldn’t they listen before they passed the bill.

  8. LayintheSmakDown

    May 9, 2015 at 1:33 pm

    I did not really expect you to seek to understand. In the 1990’s there was a great boom due to the productivity gains of the tech bubble, and obiviously one graph is not going to tell that story. It also as you said tracks only the top rate, and not cuts to items like the capital gains rate (which was lowered in the mid 1990’s) But you did choose to ignore the almost exponential growth between 2004 and 2006. If you want a more expansive narrative on the 1990’s in particular you can go here:

  9. Lucinda

    May 10, 2015 at 8:17 am

    That “exponential growth” from 2004-2006 also happened during a period when the top marginal rate was flat. The article you refer to doesn’t address the question under discussion here at all: the relationship between income tax rates and tax receipts. It is focused on comparing the effects on economic growth of the 1993 tax hike to the 1997 tax cut. I find this article to be misleading as well. It promotes the odd idea that the ’90’s boom was a result of a tax cut that was not enacted until late 1997 when the decade was almost over. The 1993 tax hike was enacted to reduce the budget deficit which it succeeded in doing. Evidence that increasing tax rates does increase tax receipts.

  10. LayintheSmakDown

    May 11, 2015 at 5:41 pm

    It was not meant to address the former, but to help you understand how there are other factors in play as well in the 1990’s.

  11. Alan

    May 11, 2015 at 9:58 pm

    Well, looks like LSD is going to pick up a Nobel prize in Economics! Since you’re so busy being an economist/doctor/surgeon/astronaut/teacher/philosopher/scientist (LOL)/paleontologist here on this forum, perhaps the Nobel Prize Committee should simply just send it to the Civitas office for you to pick up when you are free?

    I wouldn’t really expect you to “seek to understand”, LOL.

  12. Lucinda

    May 12, 2015 at 7:25 pm

    LSD, um, I don’t think I’m the one who needs to understand that there are other factors in play that cause tax revenues to rise and economic activity to grow. I’m not the one proposing the idea that cutting tax rates causes tax receipts to increase and the economy to grow.

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