NC should hold off on Jan. 1 tax cuts as huge state expenses loom | Opinion

The famous quote, attributed to Mark Twain, holds that “No man’s life, liberty, or property are safe while the legislature is in session.”

That’s often true, but in North Carolina it’s now the opposite. The Republican-controlled General Assembly is not in session when North Carolinians sorely need it to be. Lawmakers have gone home for the year without acting to stop the next round of tax cuts from further reducing the state’s ability to serve its people.

Alexandra Sirota, executive director of the nonprofit NC Justice & Tax Center, said about the potential revenue loss, “North Carolina is on the brink of a self-inflicted fiscal crisis.”

Unless the legislature acts, another in a series of scheduled tax breaks will take effect on Jan. 1.

The New Year’s Day change will reduce the state’s individual income tax rate of 4.25% this year to 3.99% in 2026. The corporate income tax will drop from 2.25% to 2%. The Budget & Tax Center estimates the cuts will cost North Carolina more than $1 billion in lost tax revenue. For context, the center noted that $1 billion is enough for “a 10% average raise for teachers, free school breakfast for students, and increased child care subsidy rates that are closer to the real cost of care.”

In a recent memo on the effects of that lost revenue, the center said: “This is a pivotal moment. Lawmakers can either pause the upcoming income tax cuts and protect essential services — or allow a policy choice that will widen inequality, weaken North Carolina’s fiscal stability, and push communities further behind.”

This isn’t an issue about just one tax cut. It’s about the cumulative and projected impacts of past and scheduled tax cuts.

Republicans took control of the General Assembly in 2011 and began cutting taxes in 2013. Since then, the individual income tax has fallen from 5.8% in 2014 to 4.25% this year. In addition, the corporate income tax has dropped from 6.9% in 2013 to 2.25% today and is scheduled to be eliminated by 2030.

Under a 2023 law, individual income tax rates are scheduled to fall for the next several years so long as revenue from taxes exceeds certain trigger levels. The NC Tax & Budget Center estimates that by 2030, cumulative tax rate reductions just since 2023 will cost the state $14 billion in lost revenue annually.

Gov. Josh Stein is urging the legislature to suspend the coming tax cut because it could compound a projected shortfall in state tax revenue as the economy slows.

Cutting taxes now is also foolish in light of the costs that President Donald Trump’s “big beautiful bill” will pass from the federal government to the states.

One big cost will come from the federal government paying a smaller share of the Supplemental Nutrition Assistance Program (SNAP) that provides food assistance to 1.4 million North Carolinians. To maintain the program at that level, the NC Budget & Tax Center estimates that the state will have to pay $420 million more plus about $65 million in additional administrative costs.

Meanwhile, Trump’s law reduced Medicaid funding and Medicaid eligibility in ways that could see North Carolina lose more than $40 billion in federal dollars over the next 10 years.

Sirota said it does not bode well that the legislature left town without fully funding the current Medicaid plan, leaving it $319 million short. “Given the fact that legislative leaders refused to show up to meet the near term and frankly smaller scale of need in the existing Medicaid program this fall, it is clear that they are not taking seriously their responsibility to ensure health care is available to North Carolinians,” she said.

Republican lawmakers are split on letting the scheduled tax cuts go through. State Senate leader Phil Berger, R-Rockingham, is adamant about keeping them. House Speaker Destin Hall, R-Caldwell, has concerns. The 2023 law setting the tax cut schedule triggers the tax cuts if state revenue is coming in at certain levels, but Hall said these levels should be increased to reflect inflation.

This is not a time to cut taxes. Along with the coming bills for SNAP and Medicaid, the state also needs to increase pay for teachers and state employees and to respond to huge needs as western North Carolina continues to recover from Hurricane Helene.

This lack of a legislative session may contradict Twain’s warning, but it upholds the advice of another American humorist, Will Rogers: “If you find yourself in a hole, stop digging.”

Associate opinion editor Ned Barnett can be reached at 919-404-7583, or nbarnett@newsobserver.com