Cooper says we have enough money for 18% spending increase, but not enough for scheduled tax cuts

Published March 16, 2023

By Paige Terryberry

Governor Cooper released his recommended budget for the biennium today. The General Assembly has already begun budget writing, and the Governor’s recommendations, in this case, are purely political. 

Even so, it is worth examining what our state budget could look like should the Governor have his way. 

This budget tackles numerous topics, including Leandro and Medicaid Expansion which are not discussed here. Below are a few fiscal highlights: 

Increase State Spending by 18% in the First Year 

The recommended budget offers a $32.95 billion baseline for the upcoming fiscal year. This is an 18% increase from our current budget, which clocks in at $27.9 billion. This would be the largest year-over-year spending increase in the state’s history. The second year of the biennium recommends appropriating $34.23 billion. This second-year spending number is generally increased during the short session budget adjustments. 

Increasing spending commitments on the eve of a national recession is unwise. An 18% increase is particularly egregious.

It is important to remember that although Gov. Cooper articulates the spending as “investments” in crucial programs or updates to the state’s infrastructure, 88% of the state budget goes to paying people. 

Calls for spending increases are more politically alluring than calls for restraint. But in the end, expanding government harms North Carolina families who will foot the bill. 

Increase State Employee Pay 

The recommended budget would implement a 5% across-the-board cost-of-living increase to state employees in the first year followed by a 3% increase in the second year. One-time bonuses would be offered on top of that. 

Teachers would see a 16.6% pay raise under the Governor’s two-year budget, with 10% coming in the first year. Teacher pay is a recurring topic in North Carolina. However, any discussion of teacher pay must account for the increasing cost of teacher benefits (health insurance, retirement, etc.). 

Moreover, paying teachers or state employees based on job performance rather than years of service could greatly improve the state employee pay issue. 

After Gov. Cooper vetoed pay increases numerous times, the last biennium budget increased pay for most state employees. Pay increases are important, but it is also key to note that these are recurring budget items and incur long-term liabilities for the state budget. 

Deny Scheduled Tax Rate Cuts 

The Governor’s recommended budget would implement a two-tiered progressive tax rate. Because it’s politically implausible to raise taxes, the Governor’s plan would halt tax reform for higher-income families ($100,000 threshold for single filers; $200,000 for MFJ) at the current rate of 4.75%. Families below that income threshold would see their personal income tax rate decrease to 4.5%. 

The currently scheduled tax rate cuts would go to 3.99% by 2027 for anyone paying income taxes in North Carolina. 

While claiming, on one hand, to invest in businesses, the Governor’s recommended budget would stop the scheduled phase-out of the harmful corporate income tax rate. This would be to the detriment of North Carolina workers who bear the burden of the tax. A higher corporate income tax results in lower wages and fewer jobs. 

Gov. Cooper’s administration has no qualms with an almost 20% expansion of state spending on the eve of a recession. That the administration can applaud government expansion while disregarding tax cuts to North Carolina businesses and workers is telling of their priorities. Thankfully, this political budget is dead on arrival.