Which NC budget proposal delivers for families struggling with the cost of living, and which delivers for the top 1 percent?
Note: This blog post is one of a two-part publication providing information about the numerous tax policies in the 2025-27 NC State Budget process. If you wish to read in more detail about the impacts of tax policies contained in the Governor, House, and Senate budget proposals, read Part 2 here.
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As we make our way to the end of the fiscal year on June 30, state lawmakers are at work putting together a final state budget. At this point in the process, we’ve now seen three different proposals that claim to deliver for the families of North Carolina: one each from the governor, House, and Senate. So, how do they measure up?
Here’s a recap of some of the tax policy differences among the proposals:
Table 1: Summary of key tax policies across budget proposals
| Governor | House | Senate | |
|---|---|---|---|
| Corporate Income Tax (CIT) | Stops CIT cuts, keeping the rate at 2.25 percent | Cuts CIT to 2 percent next year and eliminates it in 2030, maintaining current law | Cuts CIT to 2 percent next year and eliminates it in 2030, maintaining current law |
| Personal Income Tax (PIT) | Stops PIT cuts, keeping the rate at 4.25 percent | Cuts PIT to 3.99 percent next year and eventually lowers it to 2.49 percent if revenue triggers are reached, maintaining current law
Sets revenue thresholds that trigger future rate reductions to ensure total revenue in a given year keeps up with population growth plus current inflation estimates. Under this change, PIT is projected to remain at 3.99 percent through 2030 Increases standard deduction by $500 for individuals and $1,000 for married couples |
Cuts PIT to 3.99 percent next year, maintaining current law
Eliminates revenue thresholds to make PIT rate cuts automatic for TY 2027 and 2028, bringing the rate to 3.49 percent and 2.99 percent, respectively.–Schedules additional cuts to the PIT, eventually lowering it to 1.99 percent if revenue triggers are reached |
| Other tax policies for families/individuals | Sales tax holiday
Working Families Tax Credit Child Tax Credit Child and Dependent Care Tax Credit |
Sales tax holiday
“No tax on tips” policy to provide personal income tax deduction for up to $5,000 in tips |
None |
Households earning less than $50,000 fare best under governor’s plan
North Carolinians are probably curious to know what these proposals would mean for their after-tax income, and the NC Budget & Tax Center took a deep dive into the data to find out.
As the chart above shows, households with incomes less than about $50,000 a year would see the biggest boost under the governor’s plan in the near term, seeing their taxes decrease by over $300 a year on average.
Meanwhile, those same households would see a boost of less than $125 under the House plan, and less than $40 under the Senate plan, on average.
Households in the worst-paid 20 percent of the distribution (with incomes less than about $25,000 a year) would fare particularly poorly under the House and Senate plans, seeing a boost of just $75 and $5 a year, respectively.
Tax credits versus tax gimmicks explains the difference in impacts
Three factors explain the lopsided benefits in the chart above:
- Targeted tax credits in the governor’s budget: Poorly compensated North Carolinians do better under the governor’s plan due to two evidence-based tax credits — a Working Families Tax Credit and a Child Tax Credit — that are designed to reach low- and moderate-income families, who pay the largest share of their income in state and local taxes in North Carolina.
- Flat income tax cuts in the House and Senate budget: The House and Senate, meanwhile, rely on across-the-board reductions in income tax rates, which provide the biggest boost to the wealthiest households, while leaving struggling families behind. Because the resulting tax cut for the wealthy few is so large, these income tax rate reductions also cost the state billions that could be used to reduce the costs that hit family budgets hardest, like housing, child care, health care, and higher education.
- Tax gimmicks instead of meaningful policy in the House plan: The House additionally relies on tax gimmicks, like a “no tax on tips” policy that provides very little benefit to very few North Carolinians and is ripe for exploitation by employers and high earners. The House also favors an increase in the standard deduction, which provides a tax cut of about $20 to the average household earning between about $25,000-$50,000, over the governor’s more impactful Working Families Tax Credit, which would provide a tax cut more than 10 times larger to the same income group.
(See our companion piece for a deeper dive into how individual tax policies contribute to the overall tax change for North Carolinians of different incomes. This analysis also shows average tax change by income level when the House and Senate’s income tax rate reductions are fully implemented in future years.)
Revenue loss from tax cuts prevents House and Senate plans from addressing cost-of-living priorities
Unfortunately for the average North Carolinian, lawmakers can offer no rigorous evidence that tax cuts for the rich will help the larger economy in ways that reduce the costs their constituents care about, like housing, child care, health care, and higher education.
In fact, these tax cuts (with an eventual price tag of $8.7 billion a year for the House and $10.4 billion a year for the Senate) will almost certainly guarantee that costs for North Carolinians will increase by leaving the state with less available revenue to make evidence-based investments that are proven to bring costs down.1 Estimated revenue impacts combine information from state government sources and special data requests to the Institute on Taxation and Economic Policy (ITEP). ITEP estimates are based on state income on near-term income levels and so are very conservative estimates of long-term revenue loss, since personal and corporate incomes are likely to rise over time.
These cost increases aren’t a future hypothetical. Key differences in the spending plans across the three budget proposals show how, under the House and Senate plans, North Carolinians will pay the price for tax cuts for corporations and the wealthy few:
Table 2: By stopping income tax cuts for corporations and the wealthy few, governor’s budget largely out-performs House and Senate in boosting incomes and addressing cost-of-living concerns for regular NC families
| Governor | House | Senate | |
| Housing | Workforce Housing Loan Program:
$30 million over the biennium to build affordable housing, compared with $70 million in the previous budget |
Workforce Housing Loan Program:
$5 million in FY 26 only to build affordable housing, compared with $70 million in the previous budget |
Workforce Housing Loan Program:
No funding |
| Childcare Subsidies | $88 million in recurring state funds to increase child care subsidy rates
No statewide floor for subsidy rates
No changes to parent copays |
Reduces recurring state funding for subsidy by $8 million and relies on federal funds to increase subsidy rates
No statewide floor for subsidy rates $25 million in recurring state funds to reduce parent copays to meet new federal guidelines in FY 27 |
$31 million in recurring state funds to increase subsidy rates, otherwise relies on federal funds
No statewide floor for subsidy rates Unfunded mandate to reduce parent copays to meet new federal guidelines in FY 27 |
| Higher Education | Community colleges:
Funds Propel NC with about $82 million over 2 years to connect students to high-wage jobs Makes tuition free for high demand skills training
UNC system: $23 million increase over 2 years for the NC Promise program to reduce tuition at key schools |
Community colleges:
No dedicated funding for Propel NC, failing to connect students to high-wage jobs Allows system to increase tuition rates
UNC system: $19 million increase over 2 years for NC Promise program Instructs UNC System to raise tuition rates to recover $30 million in reduced state funding |
Community colleges:
Funds Propel NC with about $73 million over 2 years to connect students to high-wage jobs Cuts $57 million in FY 27 and instructs system to be more efficient to compensate. UNC system: $21 million increase over 2 years for NC Promise program Increases out-of-state tuition at NC Promise institutions |
| K-12 Education | Teacher pay:
10.6% average raise over 2 years Private school vouchers: Eliminates Opportunity Scholarships for wealthy families and stops issuing new vouchers, returning $1.3 billion to public school funds over the biennium |
Teacher pay:
8.7% average raise over 2 years Private school vouchers: Maintains $625 million in FY 26 and $675 million FY 27 for Opportunity Scholarships at all income levels |
Teacher pay:
3.3% average raise over 2 years Private school vouchers: Maintains $625 million in FY 26 and $675 million FY 27 for Opportunity Scholarships at all income levels |
| State Employees | State employees pay:
2% raise and one-year, $1,000 bonus for most employees Retirees: 2% cost-of-living increase |
State employee pay:
2.5% raise
Retirees: 1% cost-of-living increase in FY26 and 2% increase in FY27 |
State employee pay:
1.25% raise and $1,500 bonus each year for most employees Retirees: Nothing |
Note: This chart highlights some of the key differences in proposed spending plans but is not intended to be a comprehensive summary of proposed funding and policy across these five issue areas or of the budget proposals as a whole.
Recent polling from Catawba College shows that most North Carolinians, regardless of party affiliation, believe state government should focus on reducing the cost of living, with about 40 percent ranking it as the top priority. Meanwhile, only 11 percent of North Carolinians in the same poll selected reducing taxes as the top priority for state government, and prior polling has shown that 80 percent report no personal benefits from the last decade of state tax cuts.
As budget writers work to reconcile tax policy and spending ideas from the House, Senate, and governor’s proposals, those constituent preferences should be top of mind.
For more detail about the impacts of tax policies contained in the Governor, House, and Senate budget proposals, read Part 2 here.
Footnotes
- 1Estimated revenue impacts combine information from state government sources and special data requests to the Institute on Taxation and Economic Policy (ITEP). ITEP estimates are based on state income on near-term income levels and so are very conservative estimates of long-term revenue loss, since personal and corporate incomes are likely to rise over time.
