Updated to clarify that most, not all, of the budget surplus would be refunded to taxpayers.
The state’s $900 million budget surplus should be partly returned to taxpayers, General Assembly leaders said Wednesday before releasing a proposal they have drafted to give out income-tax refunds this fall to millions of North Carolina taxpayers.
Their plan would give roughly $680 million in tax refunds of $125 to taxpayers who filed singly or $250 to couples who filed jointly. That is 3.6 million tax returns for 5.1 million taxpayers. The taxpayers would only get the $125 or $250 if they paid at least that much in taxes, and the refunds would be capped at those amounts.
“The people sent more money than the government budgeted for, and the governor will not work with us to appropriate that surplus,” House Speaker Tim Moore, a Kings Mountain Republican, said at a news conference Wednesday at the General Assembly.
Senate leader Phil Berger, an Eden Republican, said tax revenues don’t belong to the government, and they should send that money back to the people who earned it.
The bill would be called the Taxpayer Refund Act. It will work its way through committees starting Thursday and be up for a vote on the Senate floor on Tuesday, Berger said.
If it became law, checks would be mailed by Dec. 15.
The refunds would cost the state’s general fund a bit more than $5 million in administrative costs.
Why there’s a surplus
Revenue collections for the 2018-2019 fiscal year were $897 million more than the budgeted revenues for the year, and the over-collections were beyond the May prediction of a $643 million surplus, according to Barry Boardman, chief economist for the General Assembly’s fiscal research division.
Over-collections or shortfalls are calculated by comparing the actual revenues for the fiscal year with the budgeted revenue forecast, he said.
The increase is primarily from personal income tax and sales tax, Boardman said via email. He shared the same information with lawmakers. Personal income tax payments were higher and refunds were lower than expected. And sales taxes in May and June were more than $150 million more than expected, he said.
Spend it instead?
Sen. Jay Chaudhuri, a Raleigh Democrat, said Wednesday in an email to The News & Observer that “Republican leadership is fooling themselves if they believe a little more than a one-time hundred dollar tax refund will help North Carolina middle-class families.”
“Here’s what our middle-class families really need: They need us to invest those dollars in high-quality and well-paid teachers, better and affordable health care, and clean water and clean air,” Chaudhuri said.
But Berger pointed to items in the proposed budget that include teacher raises and school funding. Berger described N.C. Gov. Roy Cooper’s veto of the budget as blocking that funding.
He wants to return money to taxpayers to spend as they see fit, Berger said.
‘Freeing some of the hostages’
With no budget in place, legislative leaders said they would try to pass popular or noncontroversial spending items separately.
Already in committee are budget-related bills that would fund the ongoing Medicaid transformation and raises for correctional officers. Medicaid transformation moves current Medicaid users from fee-for-service payments to managed care, a decision made by legislators in 2015.
Moore said to expect action in the House about raises for state employees next week.
Berger sent a letter to Cooper on Tuesday night asking him to negotiate the budget without Medicaid expansion.
“If you maintain your Medicaid-or-nothing ultimatum, the legislature will begin freeing some of the hostages you have taken. It will of course be up to you whether to veto priorities on which there is broad bipartisan agreement. It is our position that these items have been held up long enough,” Berger wrote.
Cooper responded via letter on Wednesday afternoon, saying that “most Carolinians want a greater investment in teacher pay, not another corporate tax break.”
The governor wrote that he has not had a Medicaid “ultimatum” and does not now, saying that’s been used to stonewall budget negotiations.
“Now this letter tells me that a different tactic will be used to get a budget that is 100% the Republican way — piecemeal budget bills,” Cooper wrote. He again asked Republican leadership for a counteroffer to the budget compromise he offered in July.
Moore plans to keep an override of Cooper’s budget veto on the House calendar, where it has been since July 9, and said Republicans are “extremely close” on having enough votes for the override.
While Republicans have a majority in both chambers, a supermajority is needed for overrides. That means at least seven Democrats in the House, and one in Senate.