State Revenue

JUST RELEASED: Final Budget Includes More Tax Cuts, Reduces Expectations

The budget North Carolina will live under through June of 2017 will sharply constrain the state’s ability to make public investments crucial to promoting widespread prosperity and a growing economy. The reason: tax cuts. All of the tax changes in the recently adopted state budget will reduce available revenue for the biennium by $841.8 million. Those are resources the state will not have for public education, community economic development, the court system, and other vital services that helped deliver broad economic gains to North Carolinians in the past.

Within four years the annual cost balloons to over $1 billion each year because of the phase in of rate reductions for individual taxpayers and profi table corporations. At this critical point in the state’s uneven and slow economic recovery, policymakers chose to deliver greater benefi ts to the wealthiest few rather than build a solid foundation that supports opportunity for many.

IN FOCUS: Lessons from Kansas

Kansas’ economic performance has failed to live up to the promises made by Governor Brownback and his legislative allies. Kansas passed huge income tax cuts in 2012 that reduced annual revenue for public investments by more than $800 million for FY 2014. Proponents claimed the tax cuts would boost the state’s economy.

Instead, massive revenue loss has meant continued state funding cuts to core public investments – public schools, colleges and universities, and healthcare services. The state added jobs more slowly than the U.S. as a whole since the tax cuts took effect. Furthermore, average earnings for Kansans are lower in the wake of the tax cuts than prior to the tax cuts taking effect.

For more on lessons from Kansas, see this CBPP report.


North Carolina’s revenue system funds investments in the public structures—schools, courts, hospitals, colleges, universities, and infrastructure—that are critical to building and preserving a strong middle class and a 21st century economy. It is not just important that North Carolina have adequate resources to make these investments but how that revenue is raised is important too. The Budget and Tax Center produces research on state and federal tax policies with a focus on how they support economic opportunity and shared prosperity in North Carolina’s communities.

As revenue modernization once again becomes a major topic of debate in North Carolina, it is critical that proposals and ideas are measured against the following principles:

  • Equity – How much a family or business contributes in taxes should be based on its ability to pay. The wealthiest should contribute a greater share of their incomes in taxes than those who are low- or middle-income.
  • Adequacy – The revenue system should be able to keep up with the needs of the state. Population growth and changes in demographics often cause increased economic activity and greater demand for public services and better infrastructure. The revenue system should grow with the economy so state government can meet those needs.
  • Stability – The revenue system should not overreact to changes in the economy and policies, like strong Rainy Day Funds, should be in place to smooth the availability of revenue in difficult times.