NC Budget and Tax Center

Latest revenue forecast shows state’s economy only in line with national recovery

Even though North Carolina has collected more money than initially projected this quarter due to a moderate but steady ongoing economic recovery, it’s still far too little to pay for the investments our state needs to thrive. Tax cuts for the wealthy and powerful have reduced the money that would have otherwise been available to North Carolina to invest in our communities.

For the first quarter of the current fiscal year (July through September), General Fund revenue was $158 million, or about 3 percent, above the cautious target set by state officials. This does not suggest that all is well here in North Carolina, which becomes evident when assessing the health of state investments in local communities across the state. There is still far too little commitment to building thriving communities through investments in the classroom, community economic development, infrastructure, public health and environmental protection.

Beyond the $158 million figure, the latest quarterly revenue report released by the NCGA Fiscal Research Division highlights additional noteworthy points regarding the state’s economic and revenue landscape.

  • The early months of the fiscal year are typically the least important months as an indicator of revenue outcomes for the full fiscal year. Revenue performance during the second half of the fiscal year provides a better sense of overall revenue performance.
  • The national economy hasn’t been able to accelerate into overdrive and continues to move at a steady, moderate pace. North Carolina has yet to experience a robust expansion as a result. The revenue report also highlights that the improving economy has been insufficient to produce robust employment and consumer markets.
  • State officials see no sign of acceleration on the horizon.

The report also notes that state officials were necessarily cautious with their forecast and expect moderate, steady economic performance for the remainder of the fiscal year. In the wake of tax cuts passed by state lawmakers in recent years that largely benefit the well-off and that will reduce annual revenue by more than $2 billion once fully in place, the report supports two particular realities.

  • The costly tax cuts have not spurred economic growth and the creation of new jobs. The revenue outlook report notes that North Carolina economy mimics that nation’s steady, moderate recovery. The tax cuts have reduced resources available to invest in public schools, health services for seniors and the poor, and ensure that communities across the state can thrive.
  • For the most recent fiscal year, sales tax revenue collections were $190.4 million below expected collections. Since 2013, tax changes have resulted in a steady increase in reliance on sales tax and away from income taxes. Expanding the sales tax base with newly taxed services makes projecting revenue collection difficult. Furthermore, a greater reliance on the sales tax disproportionately impacts low-income taxpayers who spend a larger share of their income on state and local taxes compared to the state’s highest income earners who have benefited the most from income tax cuts in recent years. This tax shift also could create a tax code that does not adequately fund the investments that help build thriving communities.

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