NC Budget and Tax Center

NC tax collections likely to exceed projections, but leaders should proceed with great caution

Yesterday’s announcement that revenues are likely to come in over projection after review of April tax filings should not lead policymakers to the wrong conclusion or harmful policy choices.

Instead, as the state’s Chief Economist at the Fiscal Research Division and the head of the Office of State Budget and Management note, more time is needed to assess whether the anticipated $700 million in collections over projection should be considered one-time dollars or should result in ongoing expectations that the state will bring in more revenue each year than what had previously been expected.

They anticipate completing that analysis before the Senate proposes its budget later this month.

Whatever their decision on what this going forward, we don’t have to wait to know where we continue to be today.  The state will still have $900 million less next fiscal year because of the full cost of rate reductions that began on January 1. In total, the state tax code is still bringing in at least $3.6 billion less than the pre-2013 tax code would have under current conditions.

It is important to recognize that states should see revenue raise each year because a sustainable, adequate system would have revenue collections rise as the economy does well and as the costs for delivering services rise as well. States across the country are reporting similar increases in revenue which most experts attribute to the economy and importantly stock market doing well.

There are some nuggets in the announcement that can tell us something about what is happening in our economy and what it means for our tax code.

  • The potential overcollections equal a roughly 3 percent revenue increase which highlight the continuation of “stable, modest growth in the state economy.” That is these growth while above what was projected are in line with what should be happening in the economy but are not exceptional results.
  • The majority of the over collection is from capital gains and dividend income and corporate profits being higher than anticipated. Again, this follows from a strong stock market but does not provide evidence of a broader benefit to workers. In fact, wage and salary income is performing at projections.

The bottom line is that we should expect our state tax structure to deliver more revenue year over year in a good economy.  Policymakers shouldn’t take this as evidence that tax cuts are resulting in more revenue but that the national economy is doing well for some.

The reality remains that all around us in communities is evidence that our public investments are struggling with the constraints imposed by years of tax cuts.  We still have $3.6 billion than we would have had under the old tax code, $3.6 billion that would go a long way to meeting our priorities in education, early childhood, environmental protection and health care.

Alexandra Sirota is the Director of the N.C. Budget and Tax Center.

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