The final budget agreement from leaders of the House and Senate puts North Carolina on precarious fiscal footing in the second-half of the second fiscal year of the two-year budget and beyond. The tax changes that leaders agreed to—which were less a compromise and more of a decision to combine the tax cuts in both chambers’ proposals—make the cost of these tax cuts bigger than what either chamber proposed.
The cumulative cost of major tax changes since 2013 will be at least $3.5 billion annually.
Because of the way that the budget phases in the tax changes, budget writers only report on half of the fiscal year impact of the tax changes that include rate reductions for personal and corporate income, an increase in the standard deduction, conversion of the child tax credit to a deduction and sales tax changes. The reality is the full cost of the tax changes proposed will mean the state has $1 billion less than they would have had under current tax law.
That means that in the creation of the next two-year budget, beginning in Fiscal Year 2019-20, legislators will have to cut current service levels that are already broadly recognized as falling far short of need, or raise revenue to meet the demands of a growing state population. Given federal uncertainty, even the investments they suggest will be made will be put in jeopardy by their tax choices and decision to hide the full impact of the tax changes.
Compared to pre-2013 tax law, the new changes to the tax code, coupled with other changes since 2013, will deliver an annual average tax cut to the top 1 percent of taxpayers of $22,000 while the bottom 20 percent of taxpayers will receive an average annual tax cut of just $16 each year. Of those in the bottom 20 percent of taxpayers, only 39 percent will receive a tax cut. Read more