Governor’s budget proposal offers a course-correction after a decade of tax cuts for the wealthy

Last week, Governor Cooper released his FY 2024-25 budget proposal. With key tax policy changes to shore up revenues, spending increases targeted to the drivers of economic well-being, and an overall spending level that brings the state closer to historical levels of public investment, this budget proposal rightly prioritizes the urgent needs of regular North Carolinians over additional tax cuts for corporations and the wealthy few. 

Tax policy proposals would put NC revenue on a more secure trajectory

Under current law, North Carolina is on track to lose more than $13 billion in annual tax revenue by 2031, due to the General Assembly’s continued reductions in the personal income tax rate and scheduled elimination of the corporate income tax (CIT). Governor Cooper’s budget proposal makes two key changes to tax policy that would alter this trajectory and shore up the state’s ability to deliver economic well-being for communities struggling to make ends meet across the state. 

First, the proposal would keep the CIT at its current rate of 2.5 percent, already the lowest among the 44 states with this tax. Keeping the CIT at 2.5 percent would increase revenue by $74.2 million in FY 2024-251 and stands in stark contrast to current law, which will cause the state to lose more than $2 billion in public dollars each year when the CIT is fully eliminated. 

Second, the proposal would restore a graduated structure to North Carolina' personal income tax rate. The adjustment would maintain the current rate of 4.5  percent for higher income households earning above $200,000 (if married and filing jointly), while moderate- and lower-income households would eventually pay a rate of 3.99 percent. Since the lowest-income North Carolinians currently pay more in state and local taxes as a share of their income than the richest in our state, returning to a graduated income tax structure would be a welcomed correction to our upside-down tax code. This change would raise $126.9 million in FY 2024-25.  

Altogether, the Governor pays for his proposal through a combination of these tax policies changes, the prior year’s unappropriated balance, overcollections and reversions from the current fiscal year, and forecasted revenue for FY 2024-25. After adjusting revenue availability, making statutory and additional transfers to reserves, and appropriating $34.5 billion from the General Fund, an unappropriated balance of approximately $200 million remains.

Proposal makes key investments in drivers of well-being

Over the last decade, one consequence of the General Assembly’s trickle-down economic strategy has been tax cuts for the rich, pursued at the expense of investment in the true drivers of personal and economic well-being. The Governor’s budget proposal rightly prioritizes urgent and overdue funding for systems that are essential to our state’s economic health, such as child care and public education.

The proposal recognizes that child care is a public good that benefits us all — parents need it to participate in the workforce, businesses need it to retain employees, and kids need it to support development during a critical window of life. The budget proposes $745 million for child care and early education, including $200 million in grants to stabilize child care providers as they face the impending loss of federal funds at the end of June. Without the provision of stabilization grants, surveys show that a third of child care centers will close and nearly 90% plan to raise rates for parents.  

The Governor also calls on the General Assembly to prioritize funding for North Carolina’s public K-12 system, with an additional $730 million to fund teacher raises, recruitment and professional development, teaching assistants in K-3 classrooms, and more. This level of investment takes action to fulfill the state’s constitutional obligation to provide a sound, basic education to every child, rather than repeatedly contest that obligation in court as legislative leaders continue to do.  

As public school families continue to experience dysfunction due to chronic underinvestment in the system — including school buses that never arrive, high levels of teacher attrition, and school closures that send parents scrambling as teachers rightly protest poor pay —  the Governor calls for a moratorium on additional funds for the state’s private school voucher program. This change would save $174 million in FY 2024-25, putting the needs of public school children and educators above sending tax dollars to wealthy North Carolinians whose children have never attended public schools.

Moves overall spending closer to historical averages, but still short of pre-Great Recession levels

Over the last decade, the spending in our state budget has fallen far below historical averages, bottoming out in FY 2021 when legislative leaders spent just 4.3 percent of state personal income on the public goods and services that help communities thrive. If North Carolina had instead budgeted at the historically typical level that year, an additional $9 billion would have flowed to education, child care, public health, and other urgent needs during the depths of the COVID-19 pandemic.

At 5.1 percent, the overall spending level of the Governor’s budget proposal would bring North Carolina closer to our 50-year historical average of 5.8 percent of state personal income. This level of investment represents a real acknowledgement that our public dollars when directed towards the true drivers of economic well-being have historically provided enormous value to generations of North Carolinians, from building public infrastructure like roads and bridges to creating a world-class system of public universities and community colleges. 

While the Governor’s $34.5 billion budget for FY 24-25 is a clear step in the right direction, it would still fall more than $4.5 billion short of the 50-year average spending level, relative to the size of the state’s economy. That gap has implications for well-being in our state. With an additional $4.5 billion in public investment, North Carolina could cut child poverty by one-third with a state-level Child Tax Credit, provide free breakfast and lunch to every public school student, expand and preserve affordable housing for 10,000 low-income households, end hunger in our state, and still have $1.5 billion to spare. 

People drive our economy, and NC communities will thrive when people have what they need 

Every North Carolinian wants their community to have what it needs to thrive: accessible and affordable childcare, an excellent teacher in their child’s classroom, school buses that arrive on time, and safe housing that doesn’t break the bank. The Governor’s budget proposal shows North Carolinians what could be possible if we used our collective wealth not to subsidize private school for the rich and profit margins for multinational corporations, but to fund what really drives our economic success: our people.