(The Center Square) – North Carolina Gov. Josh Stein complained Tuesday about automatic tax-cut triggers that kick in as state revenues rise, saying they could force “exceedingly painful cuts” in services the next two years even though the state is doing well financially.
“We are not a poor state,” the governor said at the monthly meeting of 10 executive office leaders known as the Council of State. “By no measure are we a poor state. We added more jobs than any state in the country last quarter. We had the best job-announcement year in history last year with 35,000 good- paying jobs.”
A revenue forecast issued March 24 backed up the governor’s assessment of the state’s financial condition, predicting that the general fund tax collections will be higher than expected in 2027 and 2028.
“This means the individual income tax rate will automatically decrease, by statute, from 3.99% to 3.49% beginning in tax year 2027,” the Office of State Budget and Management said in a release. “The consensus revenue forecast for the current fiscal year is more than $2 billion higher than the level necessary to trigger this automatic rate reduction. This rate cut is very likely to occur and will reduce revenues by more than $2 billion per year.”
An automatic income tax cut in 2028 “is less certain,” the release said, but could potentially reduce state revenues by an additional $2 billion.
“I’m not suggesting we raise taxes,” Stein said. “We have the ninth lowest state and local tax burden. We have the lowest tax burden on businesses of any state in the country.”
However, since the triggers were added, the state has experienced the most damaging storm in North Carolina history, Hurricane Helene, and faces the loss of hundreds of millions in funding from the federal government, costs that have been “pushed onto the states,” Stein said.
The automatic tax cuts mean that, “In two years, we will have $2.8 billion less to meet our budget needs,” Stein said. “In three years, it balloons to $5 billion less.”
Starting pay for positions such as Highway Patrol officers and correctional officers are already 49th in the country, the governor said. Teacher pay is 43rd in the nation, he said.
“Things are going pretty well in this state, but if we don’t have a fiscally responsive budget, we are all going to have to make exceedingly painful cuts in the work we do for the state,” the governor said.
North Carolina’s economy continues to outperform revenue projections, just as it has for more than 10 years, Joseph Harris, fiscal policy analyst with the John Locke Foundation told The Center Square
“That consistent underestimation is exactly why policymakers should be cautious about making significant policy changes based on forecasts several years into the future,” Harris said.
Tax relief is actually one of the factors that has contributed to the state’s robust growth, he added.
“If the governor is concerned about tax cuts, a more constructive approach would be to propose a workable compromise,” the analyst said. “The currently scheduled 0.5 percentage-point reductions are more ambitious than the state’s previous rate cuts, and policymakers could consider phasing in smaller 0.25 percentage-point reductions instead.”
A smaller tax cut would still preserve tax relief while continuing to fuel North Carolina economic growth, Harris said.
