North Carolinas tax structure is almost assuredly going to receive an overhaul in 2013. Legislative leaders and newly elected Gov. Pat McCrory have made no secret of this. It is vital, however, that while addressing the revenue side of the states ledger, they dont ignore the spending side.
The case for legal restraints on state spending in North Carolina is urgent. A review of the 30-year period from fiscal years 1979 to 2009, for instance, shows that North Carolinas state budget even after adjusting for inflation more than tripled in the 30 years preceding the current recession. Moreover, inflation-adjusted state spending grew at more than three times the pace of population growth during that time.
The cost of state government to North Carolina households has risen much faster than the overall cost of living. The overall price level as measured by the Consumer Price Index increased by 165 percent from 1981 to 2011. By comparison, the cost of state government to the average North Carolina taxpayer has grown exponentially faster. Per capita state spending grew by 265 percent in that time span a pace 100 percentage points higher than the overall cost of living.
Moreover, state spending trends over the last few decades have resembled a roller coaster dramatic inclines during flush economic times followed by rapid drops when recession hits. Recessions reveal overextended budget commitments, and unfortunately North Carolina taxpayers get stuck paying the price for these reckless commitments in the form of higher tax rates.
What North Carolina desperately needs is legislation that will rein in out-of-control spending growth and smooth out the wild swings in expenditures.
Fortunately, the recently introduced House Bill 274 titled Taxpayer Bill of Rights fits that bill. The basic premise behind a Taxpayer Bill of Rights (TABOR) is to install sensible restrictions on state spending by restricting the growth of the budget each year so that it does not exceed a combination of inflation and population growth. To ensure that it isnt easily sidestepped by future budget writers, HB 274 would amend the state constitution to include the TABOR provision subject to voter approval.
Rather than allow spending to ratchet up 8 percent or 9 percent annually during healthy economic times, a TABOR would limit these annual growth rates to a more sensible 4 percent or 5 percent in most years. The extra revenue would be set aside in a rainy day fund to fill the budget shortfall when the next recession hits. Once the rainy day fund is sufficiently stocked, further excess revenue would be reserved to provide tax relief to the citizens of North Carolina.
Under a TABOR, the next time a recession hit, state lawmakers wouldnt need to panic. There would be plenty of funds set aside to balance the budget without punishing taxpayers with another massive tax hike. Moreover, because spending growth would have been curbed during the growth years, any budget deficits that may materialize during recessions would be much smaller.
A TABOR is an essential tool for smoothing out the vicious roller coaster ride the state budget has experienced for decades. A smoother, more predictable budget cycle would make it much easier for state agencies to plan their budgets ahead of time, rather than suffer through wild ups and downs.
Such a concept resonates with North Carolina voters. By a whopping 49 percentage-point margin, likely voters in North Carolina favor amending the state constitution to limit state spending growth to equal the increase in population and inflation. Sixty-seven percent of respondents to Civitas Institute polling said they strongly or somewhat support such a measure, compared with just 18 percent who strongly or somewhat oppose it.
A TABOR is certainly not a new idea to North Carolina state lawmakers. Some version of TABOR legislation has been introduced regularly in recent years but failed to receive a hearing.
Tax reform will be front and center in the 2013 session, but it is critical that state lawmakers not neglect state budget reform also. Focusing only on the revenue side of the ledger while not addressing the expenditure side would be incomplete. They must protect the people of North Carolina from the out-of-control spending spree of recent decades.
Brian Balfour is director of policy at the Civitas Institute in Raleigh ( nccivitas.org).