Faced with pausing tax cuts for the rich or lowering state spending, NC Senate budget sides with the wealthy few

With the release of their budget proposal Monday night, Senate budget writers brazenly and unequivocally put tax cuts for corporations and the richest North Carolinians above any other priority for the state. Wednesday night, a mere 48 hours after the more than 1,000 pages of bill text and budget documents were released to the public and most lawmakers, the majority of State senators cast their vote in support of the proposal. They did so after blocking numerous amendments that would have redirected proposed giveaways for corporations and the wealthy few into increased funding for child care, paid leave, and more.

If there was any doubt in North Carolinians’ minds, this budget proposal makes crystal clear the extreme measures the Senate is willing to take to deliver tax cuts for the rich. They will risk recurring budget deficits. They will risk an inability to protect North Carolinians from federal Medicaid and food assistance cuts. To deliver these tax cuts, they will cut funding for the state’s public K-12 students and community college students. And they will cut the personal income tax rate more deeply than ever before, costing the state billions more in lost revenue on top of previously scheduled cuts and creating even greater reliance upon a state sales tax and local property taxes that hit low-income North Carolinians the hardest.

Senate Plan Would Deliver $3,650 Tax Cut To Those Making Over $774k And $5 To Worst-Paid North Carolinians

As the North Carolina General Assembly puts together its two-year budget for the state, it has historically respected the state’s Consensus Revenue Forecast as a non-partisan and scientific estimate of the revenue that lawmakers will have available for their spending plan.

In February, that forecast projected that — instead of seeing revenue increase from the first year of the budget to the second (as one would expect with a growing population and, for now, a stable state economy) — lawmakers should expect a revenue decrease. The forecast attributed this decline to scheduled personal and corporate income tax cuts that give a boost to the rich while sending just $5 to the worst-paid North Carolinians. 

Due to these tax cuts, forecasters estimate that the state will begin to experience a structural imbalance during the course of this two-year budget, creating recurring deficits that will grow over time unless lawmakers change course. One would expect state leaders to preserve the little state revenue at their disposal, given this budget outlook and the additional sources of risk to and pressure on state finances:

1. Looming federal cuts to Medicaid and food assistance
2. The need to recover from Helene and prepare for future climate disasters as FEMA dials down support
3. Chronic underfunding of basic state services like public K-12 education and the DMV

Far from hitting the brakes on tax cuts for the rich, the Senate budget hits the gas and violates their own rules for responsibly lowering tax rates:

• Under current law, the personal income tax rate drops as low as 2.49 percent by 2029. The Senate budget proposal goes further, eventually taking the rate to a mere 1.99 percent as soon as 2031 if arbitrary revenue triggers are met. While personal income tax revenue is not impacted during this two-year budget, the change will lead to additional revenue losses of $1.2 billion and $2.5 billion in fiscal years 2028 and 2029, relative to current law.
• In the previous state budget, the NC General Assembly established revenue thresholds that they claimed would safeguard against lowering tax rates too much, too quickly. But the revenue forecast determined that state dollars would fall short of the threshold needed to lower the personal income tax rate to 2.99 percent in 2028, so the Senate’s budget proposal simply eliminates the threshold requirement for that year and lowers the rate anyway.
• For good measure, they also eliminate the threshold requirement for lowering the personal income tax rate to 3.49 percent in 2027, even though forecasts indicate it will be met. This means that if the final accounting of General Fund revenue for 2025-2026 comes in lower than expected, 2027’s rate cut will go into effect regardless, doing away with what little fiscal responsibility Senate budget writers might have laid claim to and making future revenue thresholds effectively meaningless.

Rather than protect current revenue and services, the Senate budget goes further and reduces General Fund revenue by about $100 million in the first year of the budget and about $70 million in the second year of the budget. They achieve this by reducing the franchise taxes that corporations pay, even as they increase court fees that hit low-income North Carolinians the hardest.

To Finance Tax Cuts For The Rich, Senate Budget Proposes Record-Breaking Low Spending

To make the numbers work in the short-term and finance these continued cuts for corporations and the wealthy few, the Senate budget proposes an overall level of spending equal to just 4.3 percent of the state’s economy in Fiscal Year 2026 and 4.2 percent of the state’s economy in Fiscal Year 2027 — a 50-year low. As the chart below shows, before tax cuts for the rich began in 2013, North Carolina’s General Fund historically amounted to between 5 and 7 percent of the state’s economy.

To put that drop in context, the General Fund proposed by the Senate for next year would be more than $12.5 billion larger (nearly 40% larger) if the General Assembly were still spending at pre-Great Recession levels. That $12.5 billion could fully fund the Leandro plan, increase the supply of affordable housing, slash wait times at the DMV, make child care accessible to all, and so much more.

Instead, the Senate proposes that everyday North Carolinians — who have already spent more than a decade unhappy with chronically underfunded services and low pay — should prepare to make do with even less. The budget proposes an average 2.3 percent “raise” for teachers and 1.25 percent “raise” for most state employees; however, since both are less than the rate of inflation, teachers and state employees will experience this as a pay cut in their everyday lives.

The budget also proposes that North Carolina's Advanced Placement students tighten their belts to finance tax cuts for corporations and the wealthy few, cutting $14 million each year in state funding to cover the registration fees for these students.

Senate’s Budget Proposal Compares Poorly With Governor’s In Aligning With Constituent Preferences

Some 80 percent of North Carolinians report having experienced no personal benefitsfrom the past decade of tax cuts. Polls show 70 percent would like to see the state budget invest more in education, infrastructure, and health care, even if that means raising taxes on wealthy individuals and large corporations.

If Senate budget writers were interested in ideas that align with these constituent priorities — and wanted to reduce the tax burden on residents with low and moderate incomes who pay the largest percentage of their income in state and local taxes — they need only have looked more closely at Gov. Stein’s recommended budget.

If the Senate budget proposal shows what gets cut when corporations and the rich don’t pay their fair share in taxes, Gov. Stein’s proposal shows what is possible if we hit pause on next year’s scheduled tax cuts, call a moratorium on subsidizing private school tuition for families who are not low-income, and attempt to meet North Carolinians’ needs.

On Wednesday evening, some state senators attempted to better align the budget proposal with constituent priorities by offering amendments to increase funding for child care, paid leave, maternal health, and more — paid for by keeping the corporate income tax rate the same, reducing funds for wealthy families receiving private school vouchers, or reducing the amount of taxpayer dollars left unappropriated in the budget.

Each of these amendments was blocked by the majority party, using maneuvers that allowed state Senators to avoid voting directly on the amendments and being held accountable for those votes. For example:

• Sen. Chitlik offered an amendment to keep the corporate income tax rate at 2.25 percent in order to fund a Paid Family Leave policy. Sen. Daniel blocked a vote on this amendment by offering a substitute amendment to repeal an obsolete section of North Carolina’s General Statutes.
• Sen. Chitlik also offered an amendment to provide $50 million to increase pay for child-care workers using a small portion of the nearly $1 billion in unappropriated (i.e. leftover) funds. Sen. Daniel once again blocked a vote on this amendment by offering a substitute amendment to repeal a duplicative section of North Carolina’s General Statutes.
• Sen. Murdock offered an amendment to reduce funds for Opportunity Scholarships in order to fund efforts to reduce maternal mortality. Sen. Daniel blocked a vote by offering a substitute amendment to ensure gender-neutral language throughout the Geologists Licensing Act. In total, Sen. Daniel used this maneuver at least a dozen times to prevent Senators from taking unpopular votes on the record.

With a budget proposal this deferential to the wealthy and transparently out-of-touch with everyday North Carolinians, one can only hope that House budget writers are more attuned to constituent priorities and fiscal responsibility.