Raleigh, N.C. – Historic changes to North Carolina’s tax code and appropriations process resulted in a $643 million surplus reported by the state’s Fiscal Research Division and Office of State Budget and Management in a consensus revenue forecast released on Tuesday.
“The revised consensus forecast reflects a continuation of steady economic growth” in North Carolina and the largest year-over-year increase in personal income tax collections since 2015, according to the joint report.
Corporate tax collections were up 42% over last year and exceeded expectations by $75 million. Franchise tax collections are projected to exceed the budget forecast by more than $56 million.
“When we empowered families to keep their own earnings and rewarded businesses for creating jobs in North Carolina, the powerful economic results produced revenue surpluses for five consecutive years,” said Speaker Tim Moore (R-Cleveland).
The Republican-led North Carolina General Assembly has passed historic tax reforms throughout the decade, including a constitutional amendment to lower the maximum income tax rate on working families from 10% to 7% in 2018.
The state’s personal income tax rate was reduced from a top rate of 7.75% to a flat rate of 5.25% under Republican leadership, which also tripled the zero-tax bracket for married families from $6,000 to $20,000.
North Carolina’s sales tax rate fell from 5.75% to 4.75% under Republican leadership, while the state’s corporate income tax rate was reduced from 6% to 2.5% – now the lowest corporate tax rate levied in the United States.
Following its historic tax reforms North Carolina passed 30 states in the Tax Foundation’s economic competitiveness rankings over just 3 years.
More than 1.5 million working families in North Carolina owe no income tax on their earnings now that the state’s standard deduction has tripled. Under the House budget, working families would owe no income tax up to $20,750 of their earnings by 2020.
The state has enjoyed rapid economic growth under Republican-led tax reforms, being named the Best State for Business by Forbes Magazine two years in a row.
“I’m proud of my colleagues on both the tax and appropriations committees for keeping their promises to grow the economy with a vision for policy reform that puts the needs of everyday North Carolinians first,” Moore said.
Major reforms to how the General Assembly appropriates funding for the state budget has also been behind North Carolina’s run of revenue surpluses and record rainy day reserves.
The Republican-led legislature overhauled how road funding is allocated this decade, for example, by moving from a direct-appropriations process driven by political considerations to the Strategic Transportation Investments (STI) formula.
According to the Department of Transportation, STI allows the state “to use its funding more efficiently and effectively to enhance North Carolina’s infrastructure while supporting economic growth, job creation and a higher quality of life.”
Historic commitments to growing the state’s rainy day reserve, addressing unfunded pension liabilities, and creating a state capital infrastructure fund are other examples of responsible budgeting reforms implemented by the Republican-led state House and Senate.
The positive economic results stand in stark contrast to the false predictions of Democratic Gov. Roy Cooper’s budget team, which erroneously warned a $600 million revenue shortfall would result two years after the Republican-led legislature overrode Cooper’s veto of the 2017 state budget.
“The tax structure as enacted in this budget will, in just two years, leave North Carolina unable to meet the same level of service as is delivered to citizens today,” wrote Gov. Roy Cooper’s budget director in June 2017.
“Conservatively, we anticipate this budget would blow a $600 million hole just to meet current service levels.”
Based on the consensus revenue forecast provided by the Fiscal Research Division and Office of State Budget and Management, Gov. Cooper’s shortfall prediction was wrong by more than $1 billion.
Gov. Cooper wrote a letter to state lawmakers on Tuesday directing them how to spend the revenue surplus he predicted would be a shortfall.
Six senior chairs of the state House and Senate appropriations committees responded they would “continue our successful budget writing and tax reforms that generated the revenue surplus” and “look forward to enacting another responsible budget that builds upon North Carolina’s boom decade together.”