North Carolina has the funds to invest in a just recovery. An updated assessment of state revenues shows collections have come in stronger than previously expected over the past year and continued growth should provide some of the resources needed to dig out of the COVID-19 hole.
First the numbers. North Carolina is on track to collect $29.5 billion in revenue for the current fiscal year and is projected to see modest revenue increase in each of the next two years. That means the state should have almost $5.6 billion more this year to fight the effects of the pandemic than came in during the last fiscal year. That could be great news for people and communities still struggling to rebuild from COVID-19, but it depends on whether the legislature chooses to direct resources to where the need is the greatest. With the state $7 billion a year short of what we have historically invested in the people of North Carolina, this jump in collections won’t get us to where we need to be, but it could be a start.
So how did we get here?
Some of it was federal aid preventing another Great Depression, some is corporations and high-income people having a good financial year, and some is due to the timing of when revenues actually came in.
First, federal aid headed off what could have been worse than the Great Depression. What could have been a recession of nearly unimaginable proportions was tempered as supplemental unemployment benefits, stimulus checks, and other aid created a safety net for many North Carolinians. When the pandemic arrived in North Carolina, most people rightfully worried state revenues would shrink dramatically. But that was before the federal government stepped in with several rounds of financial assistance for people and businesses. Federal aid hasn’t addressed all of the need, but it provided a vital backstop that kept people in their homes, food on the table, and the lights on. Aid for families also helped to prop up, personal income and sales tax collections increased during COVID-19, instead of revenues falling off a cliff. The most recent round of aid passed is partially responsible for the state’s financial outlook improving even since the last forecast was released in February before the historic American Rescue Plan was passed.
At the same time, a lot of big corporations and well-healed tar heels had a very good financial year. Many big corporations posted record profits over the last year, which drove up corporate and franchise tax payments. The figures just released expect corporate and franchise collections to jump by more than a billion dollars, an increase of more than 75% compared to the last fiscal year.
Finally, some of the jump in collections is rooted in one-time changes which impacted when revenues were actually collected. The filing deadline for personal income taxes was delayed, so some of the revenues which would have come in during the last fiscal year showed up during the current one. Second, North Carolina started collecting sales taxes on many online sales, so sales tax collections jumped significantly, pushed even further by people shopping online during the pandemic.
So where do we go from here?
The choice is pretty clear. Either we invest in rebuilding a more just North Carolina or continue lining the pockets of rich people and big businesses.
Some legislative leaders would love to divert more state resources into corporate balance sheets and wealthy shareholders’ bank accounts. The Senate recently moved to eliminate the corporate income tax entirely without really doing anything to help the families and businesses which have born the brunt of the pandemic. That bill still has not become law, so there is time to head off this most recent attempt to funnel funds into the deepest pockets.
Now that we know the state isn’t going broke, its time for a real recovery plan. Far too many North Carolinians still face barriers returning to the workforce, covering the cost of basic necessities, and the financial fallout from COVID-19 has been the most dramatic for many low-income workers, people of color, and women.
The question now is what leaders in Raleigh will choose to do. Will we see another windfall for profitable corporations and wealthy people, or a down payment on a just recovery. Justice and economic imperative point in the same direction – invest our public funds in building a better future.
Patrick McHugh is the research director for the nonpartisan N.C. Budget & Tax Center. Mel Umbarger contributed to this post.