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In case you missed it, Tazra Mitchell of the N.C. Budget and Tax Center had a great letter to the editor in Raleigh’s News & Observer over the weekend that exposed the silly story state lawmakers have concocted in order to create the illusion that everything is now fine with state budget. As Tazra explains:

“Regarding the Feb. 13 news article “ NC forecasts budget surplus for fiscal year that begins July 1”: State lawmakers are making a major change to the budget process in an attempt to mask the fallout of their recent decisions. The change also allows them to claim a “surplus” that merely reflects revenue growth – and revenue growth that’s far under the long-term average.

For many decades, the starting point for the budgeting process has been the amount of resources necessary to maintain the current quality of public systems that Tar Heels expect. Starting with this “current services budget” is standard practice for virtually all responsible governing bodies across the country.

The governor and legislature now are, crudely, redrawing the starting point for this year’s budget. In fact, the funding level they declared to be “base budget” for the upcoming year is roughly $213 million less than the budget for the current year. When and if they manage to cover the additional costs of things like more students in schools, inflationary increases in health care services or cost-of-living raises for teachers and highway patrol officers, they will claim credit for their acts of generosity.

Lawmakers lowered the bar, and when they clear it, they’ll declare themselves the winners. But budget gimmicks will not hide bigger class sizes or higher tuition rates. North Carolinians have seen too much to be fooled into thinking there is any kind of “surplus” afoot.”

Commentary

2014 End of Year Charts_tax cuts dig a holeAs the fiscal wonks at the N.C. Budget and Tax Center have repeatedly warned us would happen, the 2013 tax cuts (which went overwhelmingly to the rich and large, profitable corporations) continue to wreak havoc with the North Carolina state budget. As WRAL.com reported late last night, a new memo to lawmakers from the legislature’s Fiscal Research Division warns that the state budget shortfall is now up to $271 million for the current year.

Remember, this is happening in a time of (albeit imperfect) economic recovery around the country. For the most part, other states are gaining back the ground they lost during the Great Recession and repairing the damage inflicted upon essential state services.

Here in North Carolina, however, the opposite is true. Public spending on core functions like public schools remains mired near the bottom of the 50 states and, amazingly, many state agencies are now being asked to plan for a new round of additional budget cuts in 2015-16.

The bottom line: If things continue this way, conservative state leaders will succeed in their quest to fulfill right-wing icon Grover Norquist’s dark and disturbing vision of shrinking government down to the size at which they can “drown it in the bathtub.” Moreover, from the looks of things, they’re going to take a lot of average North Carolinians down the drain with them in the process.

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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

Recent media coverage of the mounting cost of the tax plan highlights the story of 2014. This story began in 2013 with the decision by policymakers to cut taxes for the wealthy and profitable corporations and will likely reach its climax in 2015. How policymakers choose to address the revenue crisis — through more cuts to core public services or a balanced approach that includes additional revenue — will either propel North Carolina forward or backward.  The moral of the story is already clear: North Carolina cannot hope to achieve a competitive and more inclusive position in a growing economy by cutting taxes for the wealthy and profitable corporations.

In early 2014, the reality that the tax plan will cost more than originally projected became clear.  By May, reports of a current year revenue shortfall appeared. Then new data from the IRS confirmed that the tax plan costs would likely be greater, in part, due to the original cost estimates being based on assumptions and income data reflective of an economic downturn rather than a recovering economy. The reality is that the ongoing economic recovery has been very uneven, with the bulk of economic gains flowing to the wealthiest individuals. The latest announcement this fall confirming an even larger revenue shortfall was just the next chapter in a story of an inadequate tax system. Read More