Budget crisis didn't occur
Published April 20, 2015
By John Hood
by John Hood, John Locke Foundation and NC SPIN panelist, April 20, 2015.
A funny thing has happened on the way to North Carolina’s great budget crisis of 2015.
Well, strictly speaking, what happened is funny if you are on the Right side of the political spectrum. If you are a liberal activist or Democratic politician, the emotions you may be feeling right now are frustration, disappointment, perhaps even embarrassment.
Last fall, folks on the Left began pointing to monthly reports on General Fund revenue collections from the office of State Controller Linda Combs. The reports showed that income tax revenue, in particular, was lagging behind the state’s original projections. The gap wasn’t gigantic in dollars, it being early in the 2014-15 fiscal year, but the percentage difference was noticeable.
It would have been wise, given the circumstances, simply to note the discrepancy and argue for prudence as the rest of the fiscal year unfolded. Because the 2014 tax year was the first one after the passage of major tax reforms in 2013, some differences between projected and actual revenue would have been unsurprising. North Carolina’s recent history shows that whenever state lawmakers enact major changes in tax policy, there is a potential for error in revenue forecasting. Models for predicting the future are, inevitably, based on experience. Relationships among variables that might have been stable in the past may no longer hold under new policies.
In 1989, for example, the General Assembly passed the Tax Fairness Act with bipartisan majorities. Its purpose was to update the state income tax code after years of changes in Washington, which had included lower marginal rates and the indexation of the federal code to inflation. North Carolina had never indexed its rates, deductions, and exemptions to inflation, meaning that many families of low-to-moderate incomes were paying higher tax rates than the framers of North Carolina’s income tax had originally intended.
The Tax Fairness Act corrected some of the damage caused by such “bracket creep,” although it didn’t actually index North Carolina’s tax code (that would come later, in the 1990s). The point here is that according to the official revenue forecasts in 1989, the Tax Fairness Act was supposed to be revenue neutral. It turned out not to be. By the second full year of implementation, 1991, fiscal analysts estimated that the bill had actually reduced state revenue from the baseline by around $100 million. Some put the figure much higher, at $300 million, the equivalent of about $520 million today.
My point is that those possessing a knowledge of North Carolina’s fiscal history and a modicum of common sense would certainly have noted the revenue-collection gap in late 2014 but not jumped to any specific conclusions about it. Perhaps the fiscal impact of the 2013 tax-reform bill had been inadvertently underestimated, in which case Gov. Pat McCrory and the legislature would have had to decide how to respond in 2015. Or perhaps the early indications of a fiscal gap wouldn’t prove to be predictive at all for the entire 2014-15 fiscal year — because they had to do mostly with shifting the timing of tax collections, via lower withholding and quarterly tax payments, rather than a true loss of annual revenue to the state.
Unfortunately for the liberals and Democrats in question, they didn’t just jump to the worst possible conclusion last year. They dove headfirst into a fetid swamp of apocalyptic rhetoric and conspiracy theories. They predicted a 2014-15 budget gap upwards of $1 billion. Some claimed McCrory and the GOP legislature had purposefully used a rosy scenario to justify their 2013 tax reform — and would then use the subsequent deficits to justify more budget cuts.
It turns out, however, that the issue was indeed largely one of revenue timing, not annual collections. According to the latest report, North Carolina’s General Fund tax revenue ran 69.9 percent of the forecast amount through March — about the same as last year's 70 percent. And total General Fund revenues aren't down. They're up $257 million over the same period in 2013-14.
The catastrophic hit here was not to the state budget. It was to the Left’s credibility.
April 20, 2015 at 9:12 am
Richard L Bunce says:
It was all political spinning... but exposed their core belief that government is entitled to ever increasing revenues... after all how are their candidates supposed to keep buying votes without the revenue to pay for it?
April 20, 2015 at 9:47 am
Norm Kelly says:
Since John regularly uses facts & figures to support his argument, it's almost always impossible to refute his posts. Unlike his liberal opponents who rely on 'feelings'.
However, expecting that libs being wrong on ANY topic means their credibility is damaged is not just wishful thinking. It goes way beyond 'wishful'. There is NO WAY the media, and especially the Noise & Disturber, will let there be egg on the faces of their allies in the socialist party. Cutting taxes, and cutting government spending, are NEVER supported by socialists, demons, media types, or libs in general. The damage has already been done by the libs & media allies. Their base already KNOWS without doubt that the Republican leaders in Raleigh have DESTROYED the state. Education will NEVER recover so long as heartless Republicans remain in Raleigh. 'The Poor' will be driven to bankruptcy through higher taxes & fees implemented by Republicans. The 'rich' will gain in every way possible. It's the story line of every demon pol in the state. And it's the storyline picked up by every media ally type across the state, repeated at every opportunity, without question or comment. Of course, with allies like the N&D, any comments coming forth about the massive destruction wrought by Republicans will reinforce the general attitude that the destruction is real and much more massive than anyone had expected.
Just like 'global freezing' that didn't happen. Just like 'global warming' that didn't happen. Libs will simply change their words used to describe the disaster they see, and suddenly it will become 'global climate change' that covers every possible scenario and can't be refuted because EVERYTHING is considered climate and everything affects climate exactly the way libs claim. They will do the same thing with the budget disaster that didn't happen. Witness the lies told by the demon party concerning education in Wake County. They claimed Republicans on the County Commissioners and the School Board had destroyed the local school system. The low-information voters came out to give demons both groups hoping the damage wasn't so severe that libs couldn't recover. No such damage existed. Yet libs & media types told the same 'story' often enough, in enough places, with the right speakers, that the low information got sucked in.
Same thing will happen with the budget issue. Low information types have already been convinced. The only question is if enough educated and concerned voters will come out as un-educated, low information, lib-lovers come out. The only thing that saves a republic, a freedom-loving society, is enough educated, caring, informed voters. If we let socialists and 'gimmies' do most of the voting, we'll get more taxes, more spending, less freedom, more give-aways, more claims that the rich don't pay their fair share, and various other lies that promote socialism and reward socialist pols.
Pray hard & often!
April 20, 2015 at 9:48 am
Rip Arrowood says:
....yet our students are still sharing textbooks...
April 20, 2015 at 6:38 pm
Richard L Bunce says:
Just another failing of the traditional government school systems... spending billions and yet textbooks are not at the top of the list... of course the government education industrial complex makes a lot of money off of supplying new text books each year when the existing books are just fine for many subjects. Perhaps the traditional government schools should use electronic versions of public domain textbooks?
