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The story of 2014 was the tax plan passed in 2013

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.

Revenue for the current fiscal year was originally projected to be reduced by $513 million as a result of the tax plan. Revised estimates now have revenue reduced by nearly $900 million for the current fiscal year, and this cost could possibly reach more than $1 billion based on BTC’s estimate. This shortfall is nearly equivalent to the size of the budget crisis that North Carolina first faced at the start of the Great Recession, but this one is self-imposed.

The result of the growing cost of the 2013 tax plan is foregone opportunities to invest in North Carolina’s future: thousands of additional Classroom Teachers and Teacher Assistants in classrooms, boosted funding for UNC need-based grants to help make a college education more affordable for students and families, and funding to help promote economic development in distressed and underserved communities in the state, among other public investments. The costs to North Carolinians are now showing up in the form of under-resourced schools, growing cost of a college education, and a courts system that is inefficient in delivering justice, for example.

The state’s revenue crisis is the real story of 2014 and it will continue to present challenges in the years ahead if additional revenue doesn’t become part of the discussion among state leaders. State lawmakers should revisit the costly 2013 tax plan and ensure that the state’s tax system is able to generate adequate revenue for vital public investments. In 2015, addressing this self-imposed revenue crisis in a responsible manner is the only way state policymakers can ensure the Tar Heel state is positioned for a strong economic future.

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The story of 2014 was the tax plan passed in 2013