North Carolina Is on a Roll

I have previously written about some policy changes going on in North Carolina. They lowered their state income tax rates two years ago in order to become more competitive (see the NCPA analysis here), and they refused a federal extension of unemployment benefits in 2013, which resulted in their unemployment rate falling faster than the national average.

In August 2015, the North Carolina Senate passed Senate Bill 607: The Taxpayer Protection Act. Once it passes the House, the measure will go before the voters in a referendum. The bill would amend the state’s constitution to include a tax expenditure limits (TEL) and cut the income tax rate to 5 percent.   It would also:

  • Limit General Fund spending to the growth rate of the Consumer Price Index (CPI) for the previous three calendar years, plus the growth rate of the state’s population for the previous three fiscal years;
  • Reserve two percent of the amount appropriated from the General Fund to the Emergency Savings Reserve Fund (ESRF) until the emergency fund contains an amount equal to 12.5 percent of the operating General Fund receipts;
  • Lower the state income tax to 5 percent from 5.499 percent.

A NCPA/Beacon Hill report we just released yesterday finds that if these measures are passed and approved by voters, North Carolina taxpayers will save $4.7 billion over seven years.  Furthermore, while the tax cuts would reduce state revenue by $1.3 billion, they would also create 6,500 jobs by 2025 and the economic boost would bring in an additional $17 million in revenue to local governments.

Opponents of SB 207 (and those who oppose TELs in general) argue that they tie the hands of state legislatures during recessions, when extra revenue is needed.  But that is what the “rainy day” fund is for.  According to the National Association of State Budget Officers (NASBO), overall spending by states increased more in 2015 than in any other time since 1992, mainly due to states receiving federal funds for things such as Medicaid expansion.  But for some states, such as Illinois, state spending is outpacing personal income growth, according to the Illinois Policy Institute.  Thus, it is not unreasonable for other states to take heed and not go down the path of “out of control” spending.  Perhaps North Carolina is simply taking steps to avoid a future fiscal fiasco.

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  1. BradWright says:

    It won’t make any difference. They’ll just do like Colorado is doing since Tabor was passed, and new taxes will henceforth be called fees. Like storm sewer fees, street light fees, and runoff fees for rain water, for example.

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