NC Budget and Tax Center

State lawmakers lower the bar, profitable corporations get more tax cuts

The lesson this week in North Carolina is that when you dramatically lower expectations, you are bound to exceed them. Behind these low expectations is a state setting itself up for more cuts to things like schools and a slowed economic recovery.

When North Carolina’s revenue this month came in a bit higher than the low expectations the state set due to the 2013 tax cuts, it signaled that more tax cuts for profitable corporations are on the horizon. Triggers for these corporate tax cuts were included in the tax plan passed by state lawmakers in 2013, which stipulated that the tax rate would automatically drop if total revenue collections reached certain arbitrarily-selected thresholds.

State policymakers set a low bar of performance for the corporate tax rate reductions to kick in, and based on the revised consensus revenue forecast released last week, the revenue thresholds are expected to be reached. As a result, the corporate tax rate is expected to fall to 3 percent from 5 percent by 2017, reducing annual revenue by $100 million in the first year, $350 million the second year, and then by more than $500 million annually going forward.

Prior to passage of the 2013 tax plan, North Carolina’s tax system was projected to raise around $21.4 billion and $22.3 billion for FY 2015 and FY 2016, respectively. Under the 2013 tax plan, state lawmakers set revenue thresholds of $20.2 billion and $20.975 billion for FY 2015 and FY 2016, respectively. These thresholds are BELOW what would have been collected under prior law, thus providing plenty of room to lose revenue and still meet the thresholds.

In short, state lawmakers lowered the revenue performance bar and are now celebrating that the bar was surpassed.

Slide1

With such lowered expectations come serious consequences. This lowered bar will mean another round of costly corporate tax cuts that families and the state’s economy cannot afford. Rather than cut revenue with another round of tax cuts, now is the time to reinvest and reverse the trend of underinvestment that has characterized North Carolina’s economic recovery.

Instead of another round of tax cuts, state lawmakers should focus on restoring harmful cuts made to the state budget in recent years, including those since the 2013 tax cuts passed. These dollars could provide funding for school textbooks and instructional supplies, help more kids go to Pre-K or affordable childcare, make sure seniors and those who are continuing to struggle can get health care, and make college more affordable, among other areas of the state budget. If the state pursues more tax cuts for profitable corporations, we will all lose.

Corporate tax cuts won’t do much to boost economic growth or result in more jobs being created in North Carolina in part because a portion of the corporate income tax cuts will flow to out-of-state shareholders. And more corporate tax cuts won’t change the reality that far too many North Carolinians are still waiting for their Carolina Comeback.

Corporations have done particularly well during the ongoing economic recovery – corporate profits have more than doubled from their trough levels in 2008 – but workers could use some help. Wages have stagnated since the end of the recession despite a steady increase in productivity – an indication that workers are not sharing in the economic gains.

State lawmakers helped make more corporate tax cuts possible by lowering the performance bar, but that doesn’t mean it’s the right move for North Carolina. Lawmakers should redirect their efforts and work instead to ensure that the state’s tax code works for all and that everyone has economic opportunity.

16 Comments


  1. LayintheSmakDown

    May 13, 2015 at 1:08 pm

    You have it all wrong on this post. As we can see in the current cycle, tax receipts INCREASE when you adjust taxes to reasonable levels. Want to wager next year, assuming we don’t have another dip in the obama recession, we will be touting even more revenues over forecasted…especially your flawed forecast?

  2. love my state

    May 13, 2015 at 2:05 pm

    actually smack, you’re the one who’s got it wrong… the only tax receipts that increase are from the middle class and working poor who pay for the decrease that’s given to corporations. trickle down is a myth.

  3. Alan

    May 13, 2015 at 2:20 pm

    LSD and the Crazy Talk Express… so, we’re back to the propaganda that tax cuts actually increase tax revenues??? On what planet would that happen? LSD, you are wrong in just about every single comment you post here. Nice try on the Obama recession, facts don’t support your crazy talk.

  4. Lucinda

    May 13, 2015 at 4:31 pm

    Didn’t we just have this discussion? And didn’t LSD just say, of course, other factors are in play that help explain increased tax receipts? Or does that argument only apply when taxes have been cut and revenues _don’t_ rise?

  5. LayintheSmakDown

    May 13, 2015 at 5:41 pm

    No state, everyone got a tax cut. But economic activity has increased so receipts have come in higher.
    ….
    And yes Lucinda, we had the conversation where it was determined that tax receipts do go up as tax rates are decreased to reasonable levels. I am glad you remember.

  6. Alan

    May 13, 2015 at 10:13 pm

    I beg to differ, I paid more state taxes for 2014 than I did in 2013, and I earned less in 2014 than I did in 2013. Typical LSD and GOP response, up is down, and down is up. Perhaps I should celebrate if the state GOP announce a tax increase, that way I will have more to spend?????

  7. Lucinda

    May 13, 2015 at 11:33 pm

    Oh, I get it. When tax rates are decreased and tax receipts go up, it’s because tax rates were decreased. But if tax rates are increased and tax receipts go up, it’s NOT because tax rates were increased. I guess that’s when those “other factors” come into play.

  8. LayintheSmakDown

    May 14, 2015 at 11:19 am

    Ah, so one person who cheated on his taxes in 2013 represents a valid sample. Good stuff, I am sure that offsets the millions not paying as much out there in real world land.

  9. LayintheSmakDown

    May 14, 2015 at 11:30 am

    Lucinda, you are talking in quite the circles. If you give a true analysis it might make sense, but that would require some work on your part to analyze economic factors and population change among other things.

    For some remedial information on economics for you to consider. The fact is though that in the real world the tax rate being lowered increases baseline economic activity because businesses and people have more funds at their disposal to spend the money on things like increased staffing, groceries, new TV’s, gasoline, entertainment, capital improvements, and so on. Each transaction that happened where the government would have taken the dollars, there is an increased tax base for the government. And not only in taxable income but also property taxes say when you apply it to a home improvement or use as a down payment on a car.

    Another remedial hint. You may want to study the formula for GDP. You can clearly see that government does cannot increase economic activity from confiscation from people as that decreases consumption from other sources. The only way government is able to help the economy, assuming it has no effect on imports/exports, is to create money.

  10. Alan

    May 14, 2015 at 2:54 pm

    LSD, I’m afraid you’ve devolved into quite the one-man freak show with your child-like obsession about posting 1st (and last) on just about every topic. The incessant babble about guv’mint & freedom & tyranny, voodoo economics etc., is quite the spectacle of hilarity. We all know who you represent, heck, there’s isn’t one person out there that apparently has the time to put out all that daily diatribe that you seem to manage.
    OK, we get it that your assigned task is to appear here daily (all day, every day) to offer up some form of rebuttal to just about anything posted here. Masquerading as a concerned citizen when it’s so blatantly obvious you are funded by others is comical in itself. Additionally, you seem to be REALLY fast at typing, managing to get paragraph, after paragraph, topic after topic, out in your lunch break. I do wonder how you manage that, all on your own? How do you find the time to look up all those required details?

  11. LayintheSmakDown

    May 16, 2015 at 10:01 am

    I am not here all day, I just check a couple of times a day. So you are admitting you are not here for discourse, just to troll then? Why bother answering if you are not really one of the pulse’s hired goons?

  12. Alan

    May 16, 2015 at 10:38 am

    Still having issues with reflection? Maybe we shouldn’t expect more from a “bean counter”?

  13. LayintheSmakDown

    May 16, 2015 at 5:39 pm

    So just to troll then. That’s ok, Chris and Rob pays you to do it so if you gots to you gots to.

  14. Alan

    May 16, 2015 at 10:36 pm

    Sorry, I only speak English, what were you trying to communicate?

  15. LayintheSmakDown

    May 17, 2015 at 5:25 pm

    Aaaaand another troll…Chris and Rob must be payin’ through the nose if you are on commission.

  16. NC Darlin

    May 18, 2015 at 3:02 pm

    You two trolls need to take a break. As if the comments here are not brought down by both of you children.

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