NC Budget and Tax Center

With state’s economy at stake, lawmakers shouldn’t pursue more tax cuts

After enacting huge, costly income tax cuts in recent years that largely benefited the state’s wealthiest people and biggest, most profitable corporations, pursuing more tax cuts would threaten North Carolina’s economy – and yet it appears state lawmakers are doing just that.

Questions remain about what will or won’t be in the budget the Legislature passes. What is known, though, is that the spending target agreed upon by the House and Senate is $230 million less than what the state is projected to take in over the year from tax revenue.

If that turns out to mean a tax-cut proposal, it will come in the face of strong evidence that such a strategy doesn’t deliver widespread economic benefits.  North Carolina is experiencing a very uneven economic recovery. Many people still can’t find jobs and many who are working are being paid less than what it takes to make ends meet. Tax cuts aren’t going to create the jobs North Carolina needs and they take resources away from what the state should invest in to promote real growth – quality public schools, affordable higher education, modern infrastructure, and safe and healthy communities, for example.

A continued pursuit of failed trickle-down economics policies would occur as investments in those public services and others are still below pre-recession levels and insufficient to meet growing needs.

State lawmakers are pursuing two paths to usher in more income tax cuts.

One path builds more tax cuts into the state budget. Budgets passed by both the House and the Senate lower the corporate income tax rate to 3 percent from 5 percent over the next two years. These tax cuts will result in more than $450 million less available to the state for public services over the next two years. As we’ve highlighted previously, cutting corporate income taxes won’t boost North Carolina’s economy; taxes are but a fraction of a business’s costs. Furthermore, the Senate’s budget changes how corporations apportion their income for state income tax purposes and reduces the corporate franchise tax rate. In total, tax changes included in the Senate’s budget would result in nearly $1 billion in less state revenue over the next two years.

The second path, Senate Bill 607, would amend the state constitution to arbitrarily cap the state income tax rate at 5 percent. This would reduce annual state revenue for public investments by around $1.5 billion. The result would mean more erosion of vital services and probably other tax increases – most likely the state sales tax. In combination with other proposed changes to the state constitution, this path would hamstring state lawmakers in the years ahead from meeting the priorities of North Carolinians by restricting the overall level of investment in our public schools, public colleges and universities, and other important areas.

These two paths that state lawmakers are pursuing are troublesome, particularly at a time when investing in North Carolina’s future is important to the state’s economic prospects. Consequently, the continued pursuit of trickle-down economics fails to promote broadly shared prosperity and prevents the entire state from moving forward together.

3 Comments


  1. LayintheSmakDown

    August 20, 2015 at 3:22 pm

    This whole post is faulty. We need to again decrease taxes for all taxpayers, we are coming in with pretty large surpluses, and still able to (unfortunately) increase spending by 3% in the current budget. When you are still increasing spending beyond the population + inflation growth then the government is still taking too much of everyone’s money.

  2. Amoore

    August 20, 2015 at 7:14 pm

    LayintheSmakDown- your poor spelling and run on sentences clearly show an increase in education spending would have benefitted at least on NC citizen.

  3. LayintheSmakDown

    August 21, 2015 at 9:58 am

    Uh oh, the grammar police are out! What word did I mis-spell? I look back and cannot see an error, and the Word spell checker does not pick up an error either.

    As far as run on sentences, I was an accounting major not an English major so that may not be my forte. Although I will put my skilz up against any of the “journalists” at the pulse.

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