(The Center Square) – Taxpayers in North Carolina, some paying personal income tax of 7.75% before the historic 2010 midterms, are forecast to benefit from a second rate reduction trigger lowering everyone to 2.99% in two years.
Fiscal Research and the Office of State Budget and Management on Tuesday released a revenue forecast of $35.079 billion for fiscal year 2025-26 and $34.72 billion for 2026-27.
“Today’s announcement of a surplus demonstrates the success of the fiscally responsible policies enacted by our Republican majority over the last 15 years,” said House Speaker Destin Hall, R-Caldwell. “Unfortunately, this surplus revenue will be entirely consumed by a projected billion-dollar Medicaid rebase. This program must be reformed in order to preserve our ability to fund public safety, education, and other priorities.
“We must protect North Carolina’s hard-earned reputation for fiscal strength by passing a responsible budget sooner rather than later.”
The projection for 2025-26 had been $34.709 billion, and for 2026-27 had been $33.786 billion. The increases are $370 million and $951 million, respectively, or 1.1% and 2.8%.
The report, authored by legislative economist Nick Clerkin, cites the uncertainty with the American military action in Iran. Still, in addition to personal income tax being above target, it also has business taxes above target, nontax revenue above target, other taxes on target, and sales tax below target.
In a release, the Office of State Budget and Management says, “This adjustment is associated with a stronger outlook for wage growth, equity values, and business profits than at the time of the last forecast. The economic outlook underlying the May 2025 consensus forecast anticipated a modest deceleration in economic growth starting in late 2025. Although job growth has slowed, business investment and profits have proven resilient.”
Strong stock market activity in 2025 could boost income tax collections this April. A sustained military action in Iran, reduction in jobs because of artificial intelligence and changes to federal policy have potential to harm the forecast.
In 2010, when Republicans took majorities in both chambers of the General Assembly for the first time in 140 years since Reconstruction, North Carolinians were on an individual income tax system with rates of 6%, 7% and 7.75%, with potential for a surtax on higher earners.
A budget deficit 15 years ago that is estimated between $800 million and $2 billion turned around to a surplus of $5 billion prior to Hurricane Helene in September 2024. Lawmakers in the budget that was due July 1 are planning to replenish more than $1 billion used for recovery.
The state’s gain in population is 3 million the last 20 years, and more than 5.1 million the last 40 to today’s estimated 11.1 million. Unemployment is 3.9%.
