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From his inaugural State of the State speech to interviews just a few weeks ago, NC Governor Pat McCrory has repeatedly proclaimed the critical importance of any tax reform in North Carolina being “revenue neutral.”  Indeed, in the State of the State speech he emphasized the need to protect NC’s vital services – like health care – in any reform.  McCrory is now presented with tax reform plans from the NC House and Senate that far from being “revenue neutral” cut literally billions of dollars from NC’s state budget over the next few years.  How will he react to this challenge to one of his bedrock principles on tax reform?

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NC Budget and Tax Center

The revised revenue forecast released today demonstrates how important the income tax is to our state’s ability to make investments that boost our economy. As legislators begin building the next state budget, they should protect the income tax, not scale it back or eliminate it as some have proposed.

The revenue forecast indicates that tax collections since the beginning of 2013 are on target to pay for critical services included in the Fiscal Year 2012-13 budget, thanks to the revenue generated by the personal income tax. The personal income tax has been the most consistent source of revenue to pay for education, transportation, and public safety in North Carolina, and recovered quickly after the Great Recession, according to the report released today by the non-partisan Fiscal Research Division.

Sales taxes have not rebounded nearly as well because consumer demand continues to be weighed down by economic concerns, including the state’s high unemployment rate. Read More

NC Budget and Tax Center

North Carolina legislators are in the months-long process of developing the two-year state budget that covers July 1, 2013 through June 30, 2015. In light of the state’s murky economic outlook, it is important for legislators to consider the major drivers that will impact General Fund availability. There are many pressure points in the state but the biggest 5 include the following:

  1. Schoolchildren. As the single largest appropriations-supported category in the state budget, the needs of K-12 public schools are the most significant driver of the state budget. The K-12 budget has suffered through massive cuts over the last several years, and state investment in public education as a share of North Carolina’s economy is lower than before the Great Recession. This comes at a time of increasing demand: from school year 2008 to 2012, the student population grew by nearly 20,000, or 1.5 percent. The growing number of children enrolled in public schools only places additional budget pressure on an already stressed educational system. Read More
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In Kansas, tax reform isn’t exactly playing out the way some lawmakers had hoped.  The state that Grover Norquist once called “the starter gun for tax competition” has passed a series of income tax cuts over the past year with the stated goal of eventually eliminating income taxes altogether in the near future.  This “race to zero” is well underway in several states with conservative governors and legislatures.  Here’s a quick look at how that’s working out so far for Kansas:

A $2.5B budget shortfall

The Kansas Legislative Research Department is projecting a $2.5 billion revenue hole through 2018 because the legislature has yet to figure out an effective way to replace lost revenues as a result of the income tax cuts.

A threatened credit rating

Last month, a state court ruled that the Kansas legislature was breaking the law by underfunding public schools as a result of the income tax cuts, which prompted Moody’s Investors Service to warn of a negative credit risk for the state.

Less funding for public services

Concerns over the state’s credit rating aren’t the only thing that should give Kansans pause.  By starving public schools and other services critical to economic success, the state is jeopardizing future growth. Read More

NC Budget and Tax Center

In recent weeks, lawmakers in North Carolina have proposed a number of tax reform plans that would abolish the corporate and personal income taxes and shift the state’s revenue base to a consumption tax.  As the newest issue of Prosperity Watch describes, taking this approach would immediately eliminate 60 percent of the state’s annual revenue. How would the state fill in this $12 billion dollar hole? See here for more details.