Final Budget Preserves Tax Cuts While Shifting Costs to Counties and Families

On Tuesday morning, North Carolina lawmakers released their final budget for FY 2026-27 after leaving the state operating without a budget since July 2025. As previously reported, the budget makes only slight changes to scheduled personal income tax cuts and leaves untouched the continued reduction — and eventual elimination — of the corporate income tax. These tax cuts will continue to give outsized benefits to the richest households in North Carolina, along with corporate executives and shareholders outside the state. It shifts big costs onto local governments, making counties pay for federal cuts to SNAP food assistance in H.R. 1. The deal reached between the state House and Senate to pass this budget included sending two constitutional amendments to the November ballot that could lock in harmful tax policies far into the future.

The budget was crafted behind closed doors by a handful of legislators, without public input from communities about their priorities. Now, after an entire year without a budget, the NC General Assembly had less than 48 hours to decide whether to support a bill that spans more than 600 pages and covers a dizzying array of important topics. No amendments are permitted — legislators must simply vote yes or no — and lawmakers waived rules that would ordinarily allow the conference report to be reviewed in committees. These anti-democratic practices of secret negotiations without meaningful debate or community input push an unpopular agenda that benefits corporations and the ultra-wealthy at the expense of everyday North Carolinians.

BTC will continue to analyze the budget in greater detail and publish information about it in the coming weeks, including on the few spending items that could have a positive impact on well-being in our state. But we already know that the overall effect of this budget’s tax-cuts-first approach will not be to improve affordability for most North Carolina households. It will create scarcity and hardship across our state when too few public dollars are available to fund what North Carolinians need most — housing, higher education, public K-12 education, child care, health care, nutrition, and more.

Tweaks to income tax rate cuts don’t make meaningful changes to the state’s harmful tax agenda

In alignment with the previously-announced tax policy agreement between NCGA leaders, the personal income tax rate will decline to 3.49 percent in 2027. It will then drop to 3.24 percent in 2030, and to 2.99 percent in 2033. Future personal income tax cuts will be dependent on a series of revenue triggers that could bring the rate to 2.49 percent as soon as 2036. In other words, if the states hits a certain threshold of General Fund revenue, it triggers a rate cut in the following year.

The budget has no information provided about the rationale for these triggers, but they are much lower than what the House proposed in their budget bill released in May 2025, even though the new triggers apply to years further into the future. The previous House proposal’s triggers were based on a formula that accounted for inflation and population growth. The revenue triggers put into place in the new budget, on the other hand, seem designed to usher in lower tax rates regardless of the consequences, rather than to ensure North Carolina has sufficient revenue to provide services to people across the state.

In the end, the budget’s convoluted policy slows the income tax cuts slightly but is not meaningfully different from the convoluted policy previously in place. As shown in the chart below, the biggest changes are: 

• The personal income tax rate will stay at 3.49 percent for the next two years rather than dropping in 2027 and 2028. 
• Automatic rate cuts in the future will happen in smaller increments of ¼ of a percent rather than ½ of a percent.

Income tax cuts mean a loss of over $8 billion for public services by 2034 — and gambling taxes won’t make up the difference

Updated analysis from the Office of State Budget & Management shows that, relative to current (2026) personal and corporate income tax rates, the rate cuts included in the final budget generate high levels of revenue loss over time. In FY 2027, the state will lose $900 million. In FY 2028, the losses climb to $2.6 billion and continue to grow from there. While these losses are lower than what the state would have experienced under the previous schedule of steeper personal income tax cuts, the tradeoffs are still considerable. The $2.6 billion could fund a 10 percent average raise for teachers, free school breakfast for students, subsidized child care for nearly 100,000 North Carolina children, and fully cover SNAP benefits and administration costs from federal cuts.

In seeming acknowledgement that the state must make up for income tax revenue losses elsewhere, the final budget increases taxes on sports betting operators, raising the tax rate from 18 percent to 23 percent. It also makes changes to how revenues from sports betting are distributed to college athletic departments and creates a 6 percent tax on prediction-market operators. But the expected additional revenue from these changes is just $52 million for the state’s General Fund in the next fiscal year, which is nowhere close to making up for lost revenue from income tax cuts. What’s more, the final budget creates a deduction for taxpayers with gambling losses that will cost an estimated $40 million, undermining most of the revenue from higher taxes on betting operators. This deduction will mostly benefit higher income taxpayers who are far more likely to itemize their income tax returns.

State economists predict that tax cuts will mean North Carolina can’t meet current service levels in coming years

Tax policies in the final budget fail to close the state’s forecasted budgeted shortfall. While the chart above shows total revenue loss from the income tax cuts, the structural shortfall looks at how the revenue the state expects to bring in compares to the funding we need for services the state already provides. Analysis from the Office of State Budget and Management projects that the tax cuts will lead to a shortfall in funds needed for basic services starting with $1.1 billion in Fiscal Year 2028, which will balloon to $4.2 billion by Fiscal Year 2034.

In a possible nod to their awareness of the looming structural shortfall, lawmakers also left $1 billion in revenue entirely unappropriated.   

Continued cuts to the income tax rate will help the rich get richer

The budget continues down the path of tax cuts that overwhelmingly benefit the rich at the expense of the rest of us. The chart below shows the benefit that North Carolinians can expect from the personal income tax (PIT) rate cut that will go into place next year, as well as the eventual reduction to 2.49 percent. Most households will receive less than $170 when the PIT rate is cut next year, while the richest 1 percent of households (with incomes above about $870,000) will get an average tax cut of over $7,000. If the final rate decreases from 3.99 percent to 2.49 percent were in place today, the richest 1 percent would save nearly $22,000 on their annual tax bill. Meanwhile, North Carolina households with lowest incomes (who already pay the largest share of their income in state and local taxes each year), would save just $30, all while coping with steep federal cuts to food assistance and health care.

Overall, this budget will make our already upside-down tax code more unequal, with more than two-thirds of the personal income tax cuts going into the pockets of the richest 20 percent in our state.  

Limits to tax giveaways for data centers don’t go far enough

The budget eliminates the sales and use tax exemption on electricity for data centers, while leaving intact tax exemptions for data centers on software, equipment, and other business property. Though the electricity exemption is currently costing the state at least $20 million annually, the exemption on equipment is the far more costly program. Currently, the exemption on equipment is costing at least another $25 million annually, but this number is projected to increase by as much as 1,000 percent to $300 million annually once those data centers that have been announced or under construction are operational. During the buildout, the state is estimated to lose another $1.5 billion to $2.3 billion as a result of the program — a massive handout to a booming and highly profitable industry. The budget also does nothing to protect ratepayers from bearing the costs of the infrastructure buildout to support these data centers, nor does it introduce any regulation on the highly extractive industry that is placing huge demands on our scarce water resources and posing significant public health risks.  

Spending priorities don’t meet our state’s needs, with federal cuts to SNAP pushed onto counties

The budget funds an average teacher pay increase of 8 percent, but teachers have pointed out that when adjusted for inflation, they would still be making less than they did a decade ago and still not enough to make ends meet without having to take on another job. 

Nearly two years after Hurricane Helene, the budget provides another $555 million in new Helene recovery funding and reallocates another $175 million in unused Helene spending, bringing the total Helene allocations in the budget to $730 million. To date, total state investment in recovery is just over $3.2 billion. But with $60 billion in damages, and only $7.8 billion of that covered by the federal government, more than 75 percent of the total damage costs remains unfunded. We see the consequences in rising homelessness in Western North Carolina.  

The budget also fails to address the federal cuts to SNAP food assistance from H.R. 1. It leaves counties to shoulder $52 million in new SNAP administrative costs this fiscal year and shifts any future state SNAP benefit costs onto counties. Starting in 2027, these benefit costs could total up to $140 million in the first year alone, and counties will be forced to cover them with sales tax revenues. 

Despite the state being far better positioned to take on these costs, the budget puts in place a convoluted system that requires every county to help pay the state’s SNAP benefit cost obligations. Requiring counties to pay for both SNAP cost shifts will drain the very resources they need to reduce payment errors, avoid future costs, and reliably deliver food assistance to eligible families in need. 

The constitutional amendments that will go to the ballot as part of the budget deal would lock North Carolina into a future we can’t afford

This budget continues to take North Carolina down the same failed path that has not delivered greater well-being or affordability to families across the state for more than a decade. The constitutional amendments that will be on the November ballot as part of this budget deal, if passed, will lock our communities into the status quo — higher costs shifted onto families, greater levels of hardship, and a failure to secure the conditions of opportunity for every North Carolinian in every corner of our state. The Income Tax Cap Amendment would lower the maximum allowable income tax rate to 3.5 percent for individuals and corporations, blocking future lawmakers from putting better, fairer tax policies in place. And a vaguely worded Property Tax Levy Limit Amendment would require the NCGA to put limits on the funds that local governments can raise from property taxes, restricting local communities’ freedom to make their own funding decisions at the same time that the budget pushes big new costs onto counties.

The NCGA final budget shows the limits of North Carolina’s tax-cuts-first approach. Lawmakers have slowed some personal income tax reductions, but they have not changed the state’s overall direction. The budget still commits North Carolina to billions of dollars in lost revenue, preserves the elimination of the corporate income tax, and relies on relatively small amounts of gambling revenue that come nowhere close to replacing what the state will lose. State economists project that the result will be growing shortfalls in the years ahead, leaving North Carolina increasingly unable to meet its obligations.

Those tradeoffs are already visible. The largest tax benefits will continue to flow to the wealthiest households, while the budget falls short of what is needed to adequately pay teachers, rebuild Western North Carolina, protect families from federal food-assistance cuts, or invest in the housing, health care, child care, education, and other services that shape daily life. Even where lawmakers took a step toward limiting data-center tax giveaways, they left the most expensive exemptions in place and failed to protect communities and ratepayers from the industry’s growing costs.

The budget also pushes responsibility downward. Counties will be required to absorb substantial new SNAP costs at the same time lawmakers are asking voters to give the General Assembly greater power to restrict local property tax revenue. That combination would leave local governments with more obligations, fewer options, and less control over how they respond to their communities’ needs.

This is not simply a debate about tax rates. It is a choice about who benefits, who pays, and what kind of future North Carolina can afford. By continuing to prioritize tax cuts for wealthy households and profitable corporations over sustainable public investment, the budget makes it harder to build a state where every community has the resources to thrive. The constitutional amendments on the November ballot would make that course even more difficult to change, locking future generations into today’s policy choices long after the consequences become clear.