The Senate Finance Committee this morning voted to approve SB 607 which included a number of proposals that would make the state’s current economic challenges worse and undermine the foundations of a strong economy. This included an amendment to the constitution to cap the income tax at 5% and another undemocratic amendment creating a flawed formula-based limit on state investments that would force permanent cuts to education, roads and highways, health care and other key services that support our economy and quality of life. This amendment would also require a 2/3rd majority vote to increase spending beyond the formula. There is also a third amendment to the constitution included in the bill which would limit access to Emergency Savings Reserves by requiring a 2/3rd majority of legislators to access it.
The flurry of activity on tax and budget matters comes on the heels of the Senate announcement yesterday that they are willing to address certain policy matters outside of the budget, clearing the way for a final budget deal before the August 14th deadline.
A rigid, arbitrary, and fundamentally flawed formula for budgeting
The second proposed amendment which would remove authority from state lawmakers by setting an arbitrary formula for government spending has been tried in only one other state, Colorado, and has been widely acknowledged as a failure. In fact, it did so much damage in Colorado that voters chose to suspend it. Before they suspended it, this rigid formula forced drastic cuts to Colorado’s K-12 and higher education, and it became impossible for the state to keep pace with the rising cost of health care, forcing cuts to child immunization programs and prenatal health care. At the same time, it was clear that it was doing nothing to improve Colorado’s business climate, economy, or quality of life. As a result, business leaders in Colorado were major proponents of suspending the law.
The harm to Colorado was significant, but the use of such a rigid and fundamentally flawed formula would be particularly damaging in North Carolina where recent harmful budget cuts to our schools and other services average people depend on everyday would be locked in permanently and new emerging needs could not be met by future policymakers because their hands would be tied by this constitutional provision. The capping of state spending to population plus inflation growth would lead to large, annual cuts that over time make it impossible to ensure a quality education for our children, maintain vibrant main streets in communities, and invest in the health and safety of families.
In North Carolina, such a rigid formula would mean forgoing an estimated $500 million in investments next year alone. This $500 million would provide for critical classroom funding for our kids, could allow the state to support rural economic development and support the research and development at public universities that drives innovation.
Additionally, it’s critical to understand that this type of law is a gimmick and does nothing to make government run more efficiently or ensure that tax dollars are well spent. Instead of making meaningful reforms, the proposal passed by the Senate Finance Committee simply turns lawmakers’ decision-making responsibilities over to a flawed formula. Meanwhile, it won’t do anything to make sure the state’s spending priorities are in line with the needs of North Carolinians or make the tax system fairer.
An undemocratic hurdle for our tax system
The other proposal passed today by the committee – a hard limit to the income tax rate of 5% would severely limit the state’s ability to ensure the tax code is adequate and fair over time. Such a proposal could cost taxpayers money by raising the cost of borrowing. It also would likely shift the financing of public investments to fees and other taxes that taxpayers will have to pay, including higher local property taxes, sales tax, vehicle fees, and college tuition.
These proposed constitutional amendments make it harder – not easier – for lawmakers to budget responsibly and they will weaken the foundation of our economy by ensuring the state cannot invest in its people and places. A budget that includes these flawed policy ideas will not help North Carolina move forward.