State tax collections are dramatically lower than average; in an average year, the budget gap would be only $400 million instead of $3.7 billion
RALEIGH (February 2, 2011) – North Carolina’s $3.7 billion revenue shortfall has focused many state lawmakers’ attention on the need to modernize the state’s revenue system. However, as legislators look to implement revenue-neutral tax reform, it is critically important they take a historical view of revenue collections, a new report from the NC Budget & Tax Center says.
“For the coming fiscal year, state tax collections are expected to be about 16 percent less than the average of the last two decades, when you look at collections as a share of the personal incomes of all state residents,” explained BTC Policy Analyst Edwin McLenaghan. “If this were an average year for state revenue as a share of state personal income, North Carolina’s revenue shortfall would be only $400 million, instead of $3.7 billion.”
North Carolina’s narrow and outdated revenue system overreacts to economic ups and downs, which is why revenue collections are so much below average, McLenaghan explained.“That is why responsible revenue-neutral tax reform should account for revenue collections through several business cycles to ensure that revenues are adequate to sustain public investments,” he added.
“Using only next year’s projected revenues as a baseline for revenue-neutral reform would lock in today’s temporarily depressed state tax revenues, at great cost to North Carolina’s ability to make public investments in the future,” said BTC Director Alexandra Forter Sirota. “Comprehensive revenue reform should modernize and stabilize the state’s finances and also restore much of the revenues lost during the Great Recession. It is among the most important steps that state policymakers can make this year.”
FOR MORE INFORMATION, CONTACT: Edwin McLenaghan, Policy Analyst, 919.861.1468,firstname.lastname@example.org; Alexandra Forter Sirota, BTC director, 919.861.1468, email@example.com; Jeff Shaw, director of communications, 503.551.3615, firstname.lastname@example.org.