Without changing course, the NC legislature prepares us for a perpetual budget crisis
Lawmakers on the verge of squandering the opportunity offered by federal COVID-19 relief
North Carolina General Assembly leadership poised to undermine the state aid power of the US bailout by continuing its relentless pursuit of at least $ 2 billion in income tax cuts or, more likely, over $ 5 billion. Federal COVID-19 aid to North Carolina stands at $ 5.4 billion, so these proposed permanent cuts will squander our chance to make up for lost time in the work of building an opportunity base. for each community.
Years of income tax cuts mean the state could have about $ 11 billion in less revenue if legislative tax changes take full effect. That number could be even higher if the House leadership and the governor agreed to the outright elimination of corporate taxes by 2028.
Such a reduction in state revenue used to support public schools, public health, environmental protection and so many other building blocks of our quality of life would be roughly equal to 30% of the revenue collected in the country. during fiscal year 2027.
These significant income tax cuts are a self-imposed income reduction that is twice what was experienced during the Great Recession. Around this time, budget cuts resulted in reductions in the rates of Medicaid providers and the provision of health services such as prescription drugs and dental care for children and resulted in higher college tuition fees. communities and universities.
Eliminating the corporate income tax (from the current low rate of 2.5%) will reduce disposable income by $ 900 million per year. This $ 900 million is equivalent to a quarter of the annual increase in funding required by the courts to progress towards the provision of a solid basic education in fiscal year 2028. The loss of these public funds will have an impact on school districts across the state and will affect their ability to provide textbooks, instructional support, transportation and more to every child.
Reducing the personal income tax rate would have an even greater impact on the state’s ability to invest in opportunities for all. It is estimated that the domestic tax cuts will reduce revenues by $ 1.5 billion, and the Senate’s analysis of fully phased personal income tax cuts suggests that the loss of revenue for institutions and systems that support communities and people’s well-being would be around $ 9 billion.
This $ 9 billion is almost equivalent to state support for the entire K-12 education budget through the General Fund.
Income tax cuts planned by Senate and House leaders will not boost economic growth – just as tax cuts haven’t put North Carolina on a better track than other states of the region in recent years. Instead, they will ensure that the very rich receive a disproportionate share of tax relief and do nothing to address growing inequality.
The personal income tax rate cuts in the Senate plan – even with increases in standard deductions – will deliver 74% of tax cuts to the richest 20% of North Carolinians when fully implemented. implemented.
As the state grows, these income tax cuts would reduce the state’s ability to support people and key public institutions like schools and public health clinics. By FY2025, before the full impact of the planned personal income tax cuts and the elimination of the corporate income tax is felt, our collective commitment would be nearly lower. of $ 500 per person. It will make a huge difference in our ability to provide new textbooks or dental care for children or in the construction and maintenance of water supply and sewage infrastructure that keep safe drinking water available to families. of each community.
Accepting the income tax cuts proposed by legislative leaders as inevitable will put us on a path with increased vulnerability to future crises and even fewer options to meet the needs of people in the future.
The state’s fiscal stimulus funds from the US bailout should enable transformational investments that put all of our communities on a stronger footing, not encourage policymakers to further consolidate the wealth and well-being of the few. a few.
A plan for equitable and sound public investments is urgently needed in North Carolina. Without such a public response, inequalities will continue to deprive our state and our state’s communities – including blacks, Indigenous people, Latinxes, rural people, poor whites, and North Carolina immigrants – of the benefits of North Carolina. an economy that works for all and a democracy that responds to the difficulties within it.
This relentless pursuit of income tax cuts will keep us all in perpetual crisis.
Alexandra Sirota is the director of the NC Budget & Tax Center.