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North Carolina is a cautionary tale for tax cuts, new series shows

New evidence shows that North Carolina’s economy fell behind other states in the Southeast after cutting taxes, while locking in harmful cuts for schools and widening racial inequalities in the state.

A billion dollar shortfall looms in 2020.

These are the main points of a new blog series released today from the Center on Budget and Policy Priorities (CBPP).

North Carolina Experience Echoes Kansas’s Failed Tax Cut Strategy

CBPP’s North Carolina blog series builds on the organization’s previous work documenting the failure of personal income tax cuts in Kansas and other states to produce a better economy. A recent analysis found that Kansas’s tax cut experiment was a valid [4] – and failed – real-world test of supply-side economics.

As happened in Kansas, thanks to tax cuts, large budget shortfalls are looming in North Carolina. The legislature’s budget experts project that the state will avoid shortfalls through the upcoming 2019 fiscal year, but face major fiscal challenges after that. They project that North Carolina will face a shortfall of $1.2 billion in 2020, rising to $1.4 billion two years later, in 2022.

Faced with such large shortfalls, the state will face a choice: cut funding for state services such as schools, health care, transportation projects and the like, or reverse course on the tax cuts.  The funding cuts have led to declining teacher pay, low per-pupil spending, and soaring tuition.

Kansas, which like North Carolina faced large budget shortfalls after enacting deep income tax cuts, reversed course last year, repealing major parts of the earlier tax cuts in hopes of restoring fiscal stability.