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Despite the growing revenue challenge North Carolina faces, a new round of tax cuts went into effect with the start of the new year. While the growing revenue shortfall warrants immediate attention during the upcoming General Assembly legislative session that begins next week, inaction up to this point has already  dug a deeper hole as of January 1, 2015.

New personal income and corporate income tax rates are now in effect for 2015. The now-flat personal income tax rate dropped to 5.75 from 5.8 percent (the top marginal rate was 7.75 percent in 2013) and the corporate income tax rate dropped to 5 percent from 6 percent (it was 6.9 percent in 2013). These tax cuts will further reduce revenue for public investments and will largely benefit the wealthy and profitable corporation at the expense of low- and middle-income taxpayers.

The cost of the tax plan continues to grow higher than what state officials originally estimated. As of the end of the November, revenue collections are coming in $190 million below expectations. This loss is built on top of the already revised and anticipated revenue loss of $704 million due to the tax plan. Combined, this result in a nearly $900 million revenue loss for the state – much higher than the original $512 million cost estimate.

By the end of the fiscal year, BTC estimates a total revenue loss of around $1.1 billion Read More

NC Budget and Tax Center

In 2015, many conservative state lawmakers across the country are retreating from the long-held belief that cutting taxes will generate more revenue and spur economic growth. Kansas, Wisconsin, and, yes, North Carolina along with Arthur Laffer, in their efforts to put into practice the flawed theories of trickle-down economics, have created more problems than improvements, according to a recent Politico piece.

Rather than serve as a beacon of competitiveness in the South, North Carolina instead has become a cautionary tale for other states across the country that are considering tax cuts.

The evidence is mounting that tax-cutting experiments aren’t delivering on the promises made by trickle-down economic theory.

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NC Budget and Tax Center

The Charlotte Observer reports of the strain on the state’s court system in the wake of state budget cuts in recent years. The state’s court system is expected to run out of funding for juror pay by April of next year, the Charlotte Observer highlights.

The ability of the state’s court system to operate effectively has been increasingly challenged amid cuts in state funding over the years. While other states have adopted technology and incorporated electronic filing systems, North Carolina continues to use a paper-based system, which slows down the judicial process. The time taken to complete civil and criminal cases has increased in recent years, the Charlotte Observer article notes, resulting in a judicial system that is inefficient, more costly, and less customer-friendly.

State lawmakers quoted in the article note their unawareness of the pending funding shortage for juror pay and state that the General Assembly is being asked for money that it doesn’t have. This is increasingly clear as stories throughout the state have highlighted yet another announcement that the state’s revenue collections are below projections.  Official estimates now put the revenue shortfall for the current fiscal year at $190 million.

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2015 Fiscal Year State Budget, Falling Behind in NC, NC Budget and Tax Center

This week the Budget & Tax Center released a new report on North Carolina’s 2015 fiscal year budget. While other states across the country are beginning to reverse the worst cuts made during the Great Recession, North Carolina continues to underfund crucial public investments in order to pay for tax cuts that took effect this year. Lawmakers failed to provide a high-quality education for all children, protect natural resources, support community-based economic development, or provide adequate health and human services to North Carolina residents.

Under the final budget, state investments are 6.6 percent below pre-recession levels five years into the official economic recovery. The new budget for the 2015 fiscal year is the 7th budget enacted since the Great Recession hit, and North Carolina has yet to bounce back to its pre-recession investment level. This is in contrast to spending during previous economic recoveries – spending did not dip after the 1981 and 2001 recoveries and state lawmakers restored investments to the levels that were in place when the 1990 recession hit within three years. Read More

2015 Fiscal Year State Budget, NC Budget and Tax Center

Each year public schools across the state experience changes in their student enrollment levels – some see an increase, others a decline, while enrollment in some schools remain steady. A policy change included in the budget approved by state lawmakers for the current fiscal year 2015 means schools experiencing growth in student enrollment are no longer guaranteed to receive full state funding for the additional students when state lawmakers create a budget for the next school year.

The new provision in the budget no longer includes enrollment adjustments for public schools as part of the baseline budget, also referred to as the continuation budget. Prior to this policy change the state’s budgeting process took enrollment adjustments into account when determining how much state funding is required to maintain education service levels. Doing so more accurately reflect the actual level of state funding that should be invested in K-12 education.

Public schools that experience an increase in student enrollment from one year to the next must now wait until state lawmakers finalize a budget for the next fiscal year to know if enrollment growth is fully funded. Many public schools across the state could potentially feel the impact of this deceptively subtle policy change. Read More