Under the Dome

The state’s budget – and tax season – explained

Look at the large chart above .

There are two lines – one dotted, one solid.

Those lines say a lot about the state’s budget, and your taxes.

The amount of money people make at their jobs can have a big influence on the state government’s own income: through income taxes, the state gets a piece of your paycheck. Just how much depends on your withholdings. Overall, when people’s wages are lower, naturally withholding will be, too. Those essentially unified dips in wages and withholding you see on the chart around 2002 and 2009 illustrate that. While they look dramatic, you’re seeing them for a common reason: we were in recessions then.

But the big drop after 2014? That’s different. Wages sort of meander forward while withholding plummets. That’s a direct effect of state legislation, passed in 2013, that made a significant change in the state’s personal income tax code – part of the “tax reform” lawmakers so often mention. The plummeting line shows the state’s net withholding income growth falling as a result of the changes.

Income taxes dropped, and withholding forms changed, though most people didn’t change their allowances. Around now, in many cases, they’re getting either smaller tax refunds than they’re used to, or they’re writing checks to the state because they owe taxes.

According to Lee Roberts, the state’s budget director, those people generally took home bigger paychecks over the course of the year because the state didn’t take out as much money. In turn, the state doesn’t owe them as much – and may not owe them anything at all – for overpayment.

“People tend to focus on the size of their refund rather than recognizing that, throughout the year, they’ve been receiving slightly more in their paycheck,” Roberts said.

All of this impacts state government’s revenues, which news stories over the past few months have reported are coming in lower than consensus forecasts. Budget officials are saying the forecasting error was from misjudging what would happen with withholdings, but only slightly – still within a 2.5 percentage point margin of error. In the context of a $21 billion budget, monthly updates from the Office of the State Controller showed revenues off $190 million through November, $199 million through December and $216 million through January. The latest report shows revenues through February $159 million below target, an improvement to the picture.

The state’s budget office thinks that improvement will continue as North Carolinians square up with the state on their income taxes into April.

Still looming, though, is a projection that revenues for the entire fiscal year (which ends June 30) will come in short $271 million, or 1.3 percent, of budget. That’s as figured by the legislature’s Fiscal Research Division, which says the main cause may be slower-than-expected wage growth. That puts more pressure on the state budget office’s assumption that the income tax balance – with the state paying out lower refunds and collecting higher payments – will bring a revenue bump.

The Fiscal Research Division will likely wait until after Tax Day, April 15, to revise its projection.

Voters oppose consumer finance bill

A proposed law that would increase costs for borrowers who take out small consumer finance loans in North Carolina is overwhelmingly unpopular in the state, according to a new poll commissioned by group that opposes the legislation.

Ninety-three percent of registered North Carolina voters oppose Senate Bill 681, according to a survey by Public Opinion Strategies. The polling firm was hired by the Center for Responsible Lending.

Critics say the bill, which was sponsored by Sen. Rick Gunn of Burlington, would double the maximum interest rates on some loans and significantly increase fees. A coalition of consumer finance companies is supporting the bill.

The survey found:

▪  Ninety-three percent of voters polled oppose legislation that would allow finance companies to charge more than 60 percent APR on high-interest installment loans.

▪ Eighty-four percent say they would be less likely to support a candidate who voted in favor of a rate increase. That sentiment is held by 79 percent of Republicans, 87 percent of Democrats and 85 percent of independents.

▪ Among voters who attend church regularly, 65 percent think an interest rate over 60 percent APR violates the Bible’s prohibition of usury.

▪ Eighty-three percent oppose legalizing payday lending in the state, and 87 percent oppose legalizing car-title lending.

“It’s tough to get 93 percent of people to agree on anything, but our poll shows that North Carolinians are overwhelmingly opposed to legislation increasing interest rates on small dollar loans above 60 percent,” Ellen Hamick of the center said in a statement. “That’s because they recognize that these loans are designed to trap people in debt, and that they already hit many communities hard.”

The telephone survey was taken March 21-24 of 500 registered voters. Thirty percent of the interviews were conducted with people with cellphones. The margin of error was plus or minus 4.38 percentage points.

By Benjamin Brown of the NC Insider and staff writer Craig Jarvis

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