State lawmakers lower the bar, profitable corporations get more tax cuts

The lesson this week in North Carolina is that when you dramatically lower expectations, you are bound to exceed them. Behind these low expectations is a state setting itself up for more cuts to things like schools and a slowed economic recovery.

When North Carolina’s revenue this month came in a bit higher than the low expectations the state set due to the 2013 tax cuts, it signaled that more tax cuts for profitable corporations are on the horizon. Triggers for these corporate tax cuts were included in the tax plan passed by state lawmakers in 2013, which stipulated that the tax rate would automatically drop if total revenue collections reached certain arbitrarily-selected thresholds.

State policymakers set a low bar of performance for the corporate tax rate reductions to kick in, and based on the revised consensus revenue forecast released last week, the revenue thresholds are expected to be reached. As a result, the corporate tax rate is expected to fall to 3 percent from 5 percent by 2017, reducing annual revenue by $100 million in the first year, $350 million the second year, and then by more than $500 million annually going forward.

Prior to passage of the 2013 tax plan, North Carolina’s tax system was projected to raise around $21.4 billion and $22.3 billion for FY 2015 and FY 2016, respectively. Under the 2013 tax plan, state lawmakers set revenue thresholds of $20.2 billion and $20.975 billion for FY 2015 and FY 2016, respectively. These thresholds are BELOW what would have been collected under prior law, thus providing plenty of room to lose revenue and still meet the thresholds.

In short, state lawmakers lowered the revenue performance bar and are now celebrating that the bar was surpassed.

With such lowered expectations come serious consequences. This lowered bar will mean another round of costly corporate tax cuts that families and the state’s economy cannot afford. Rather than cut revenue with another round of tax cuts, now is the time to reinvest and reverse the trend of underinvestment that has characterized North Carolina’s economic recovery.

Instead of another round of tax cuts, state lawmakers should focus on restoring harmful cuts made to the state budget in recent years, including those since the 2013 tax cuts passed. These dollars could provide funding for school textbooks and instructional supplies, help more kids go to Pre-K or affordable childcare, make sure seniors and those who are continuing to struggle can get health care, and make college more affordable, among other areas of the state budget. If the state pursues more tax cuts for profitable corporations, we will all lose.

Corporate tax cuts won’t do much to boost economic growth or result in more jobs being created in North Carolina in part because a portion of the corporate income tax cuts will flow to out-of-state shareholders. And more corporate tax cuts won’t change the reality that far too many North Carolinians are still waiting for their Carolina Comeback.

Corporations have done particularly well during the ongoing economic recovery – corporate profits have more than doubled from their trough levels in 2008 – but workers could use some help. Wages have stagnated since the end of the recession despite a steady increase in productivity – an indication that workers are not sharing in the economic gains.

State lawmakers helped make more corporate tax cuts possible by lowering the performance bar, but that doesn’t mean it’s the right move for North Carolina. Lawmakers should redirect their efforts and work instead to ensure that the state’s tax code works for all and that everyone has economic opportunity.