BTC REPORTS: 2015 Budget Undermines North Carolina's Competitiveness

By Tazra Mitchell, Cedric Johnson & Alexandra Forter Sirota
Budget & Tax Center
September 2014

The 2015 state budget, passed by the NC General Assembly and signed by Governor McCrory, undermines North Carolina’s competitive position in the 21st century global economy. Lawmakers failed to provide a high-quality education for all children, protect natural resources, support community-based economic development, or provide adequate health and human services to North Carolina residents. By neglecting to make such investments, state leaders are hampering the recovery of struggling communities and failing to build a foundation for an economy that works for all. These shortcomings in the budget are another reminder that the state cannot afford the growing cost of the 2013 tax plan, which drained resources for schools and other basic services to mainly benefit high-income households.

States across the country are beginning to reverse the worst cuts made during the Great Recession, when revenue plunged and lawmakers scrambled to balance state budgets. However, North Carolina continues to underfund education and other crucial public investments in order to pay for tax cuts that took effect this year. State investments are 6.6 percent below pre-recession levels even though North Carolina is in the fifth year of the official economic recovery. This is in great contrast to North Carolina’s experience during the previous three economic recoveries. Spending did not dip after the 1981 and 2001 recoveries, and lawmakers restored investments to the levels that were in place when the 1990 recession hit within three years. The fiscal year (FY) 2015 budget—the seventh budget enacted since the Great Recession hit—has yet to bounce back and reach pre-recession spending levels.

Now is the time to rebuild, but the new tax cuts already are costing the state much more than expected and will continue to reduce the revenue that is available for public investments next year and beyond. Furthermore, these tax cuts primarily benefit the richest taxpayers and profitable corporations and shift even more of the tax responsibility onto the shoulders of middle-class and low-income North Carolinians.

Legislative leaders and the governor failed to acknowledge the growing cost of the tax plan in their final budget for fiscal year 2015, likely because they knew that revenue losses put the state on a financially irresponsible and unsustainable path. Now, there are too few dollars available to meet the needs of children, families, and communities. And under the 2013 plan, more income tax cuts will take effect in 2015. State lawmakers need to face the reality that the state cannot afford further tax cuts and halt their implementation.

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