(The Center Square) – North Carolina is bringing in higher than expected tax revenue this fiscal year, thanks to a “robust” economy, according to a new report.
A new forecast predicts $34.7 billion in general fund revenue this fiscal year, about $544 million more than previous earlier forecasts.
“The upward revision is due to more robust economic growth and financial conditions than foreseen at the time of the last consensus forecast in May 2024,” according to a statement by the Office of State Budget and Management.
Individual income taxes were up $340 million over projections, corporate income tax $63 million, and investment income $113 million, the state said.
The increases were “due largely to continued growth in wages, profits, and consumer spending and persistently higher short-term interest rates,” Budget and Management said.
Inflation has declined in recent months but still remains above the Federal Reserve’s 2% target, the report stated.
The forecast predicts economic growth will begin cooling in late 2025.
Scheduled drops in income tax rates that were previously approved by the Legislature are likely to lower state revenue, according to Budget and Management.
“The corporate income tax rate fell from 2.5% in 2024 to 2.25% in 2025 and will fall to 2% in 2026,” Budget and Management said.
Individual tax rates also dropped from 4.5% in 2024 to 4.25% in 2025 and will drop again to 3.99% in 2026.
The forecast predicts that revenue in fiscal year 2025-26 “is high enough to trigger a 0.5% rate reduction to 3.49% in 2027,” the state said.
Revenue from the state lottery in the current fiscal year is projected to increase by 9.3%, from $1.01 billion to $1.10 billion because of higher than predicted sales of digital instant games.
However, as the growth in digital games slows in future years, revenue growth is projected to stabilize to a “modest” rate of 0.6% in fiscal year 2026-27.
Gov. Josh Stein issued a cautionary statement about the new forecast, citing the enormous task of rebuilding western North Carolina after Hurricane Helene, and other state needs such as education.
“While today’s consensus revenue forecast for this year is positive, North Carolina is approaching a fiscal cliff that threatens our ability to invest in rebuilding western North Carolina, strong public schools, people’s health, infrastructure, and other services we need to make North Carolina safer and stronger,” the governor said. “With a growing economy and population, it shouldn’t be this way. I am committed to working with the Legislature to develop solutions that allow us to continue to invest in our state’s future.”