Five takeaways from the Senate’s budget proposal
This past Monday evening the North Carolina Senate released its much-anticipated budget, providing further details that demonstrate just how limiting the General Fund spending cap is for our communities.
The Senate budget represents a missed opportunity to recognize the importance of public investments in addressing the needs of North Carolinians: educational achievement through a sound, basic education for every child; well-being of our families through a public health infrastructure; social services to support those in need; and the resiliency of communities through homegrown business retention and quality jobs.
The Senate’s budget plan would bring the state’s investments to a new low while committing the state to untold losses in the form of revenue reductions by eliminating income taxes for profitable corporations by 2028 and lowering the already flat personal income tax rate.
As the state continues to respond to the ongoing COVID-19 pandemic and looks to recovery, now is the time to make greater investments to solidify the foundation of a future for every North Carolinian where their health is protected, their families are supported, and their neighbors are connected. Instead, legislative leaders continued to use flawed theories driven by anti-government, trickle-down ideology at the expense of everyday North Carolinians.
#1 – State spending would reach a historic low
Totaling $25.7 billion in FY 2021-2022 and $26.6 billion in FY 2022-2023, the budget would hold down investments – more than $7 billion short of the historical average as a share of our state’s economy – while locking the state in for years to come with fewer dollars available to make future investments.
#2 – Billions in the bank with millions in need
This proposal comes on the heels of the updated consensus revenue forecast, developed by the state’s leading economists, showing billions more in anticipated revenue growth. This windfall contradicted previous predictions, thanks to robust federal aid that stabilized the economy and the record gains for profitable corporations and high-income people throughout the pandemic that increased state tax revenue collections.
Despite the strong revenue outlook, Senate leaders propose large transfers of General Fund dollars to the flush Rainy Day Fund (i.e. Savings Reserve) and State Capital and Infrastructure Fund (SCIF), well above the statutory requirements they themselves created. These transfers put more funds on the sidelines when today’s hardship threatens to stall future opportunity and stability.
#3 – State leaders have a key role to play
Senate leaders have also begun, through this bill, allocating Fiscal Recovery Funds coming to North Carolina’s state government from the American Rescue Plan. As it stands, the Senate plan fails to provide a comprehensive vision for how the funds will be used. Instead, Senate leaders have identified a handful of areas where their priorities align with permitted uses of these one-time federal funds rather than committing state funds, such as bonuses for state employees and funding for health clinics to respond to the public health emergency.
A better strategy would be to provide a more complete picture of the use of federal funds and deploy state dollars as needed to sustain services and programs and make sure the state has the infrastructure supports to ensure that our schools, our health clinics, and our communities can fully recover from the pandemic and economic downturn over the next several years. Investing public dollars has fueled the COVID-19 response and will be essential to ensuring that a full and equitable recovery is made.
#4 – Forward-thinking investments require profitable corporations and the rich to pay their share
Senate leaders have again prioritized tax cuts that will continue to hamper our state’s ability to meet the needs of a growing population. The bill would eliminate the corporate income tax altogether by 2028 and reduce the already flat personal income tax from 5.25% to 3.99% by 2026, among other changes. The personal income tax change would overwhelmingly benefit the top 20 percent of income earners in North Carolina, with 74% of the tax cut going to the top 20% compared to none of those with the lowest incomes once fully phased in.
The full impact of the corporate income tax elimination is not yet known, largely because its phaseout is too far in the future to be able to account for all of the variables with any level of confidence. Blindly phasing out taxes on corporations without knowing what reductions to public education and other budget areas will be required is the antithesis of responsible budgeting. It is made worse by the fact that the state dollars on hand today are the result of unique factors like robust federal aid, no final comprehensive state budget for two years, and shifts in tax filing deadlines. By forging ahead with their commitment to reducing income tax rates, Senate leaders are forcing future budgets to their status quo approach of austerity.
#5 – A budget without public input
The lack of adequate investments and fundamental blows to the state tax code’s adequacy is compounded by the the absence of transparency and indifference for the democratic process informing a major policy decision at a critical moment in the state’s rebuilding from the pandemic.
To date, public hearings and input on what is needed to ensure our communities are more resilient after the past year have not been solicited nor provided a forum. Instead, legislative leaders set arbitrary spending limits behind closed doors rather than reflecting and assessing the full scale and scope of hardship and solutions available to them through a collective commitment.
With strict rules for amendments in committee and anticipation that the bill will be forced through the chamber by the end of the week, the NC General Assembly leaders have blocked not just input from the public but debate with elected leaders who are not in their party.
It’s high time our legislative leaders set aside their zeal for tax cuts and disinvestments, which have pushed everyday North Carolinians further from economic opportunity and well-being with every austerity budget. Let’s instead invest in our communities and forge a path to a more equitable future.
Suzy Khachaturyan is a Policy Analyst at the Budget & Tax Center, a project of the NC Justice Center.
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