Give it back: The clear solution for North Carolina’s surplus tax revenues

By Jeff Moore

Raleigh, NC – Last week the non-partisan Fiscal Research Division of the North Carolina General Assembly forecast yet another $1 billion+ surplus in anticipated tax revenues for the 2024–2025 fiscal year. That’s on top of the $400+ million in surplus collections for the 2023-2024 fiscal year.

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The news, the latest in a decade-long run of tax revenue surpluses, is a far cry from the Chicken Little prognostications of tax-reform opponents over the last 10 years. But while the general superiority of fiscal conservatism (versus tax-and-spend profligacy) is clear to all but the most fervent fans of ever-bigger state government, the discussion now inevitably turns to the question of, “What should be done with the extra money?”

The answer is as plain and simple as it is avoided: GIVE IT BACK.

You can expect distinctly different reactions to that answer from, either, those footing the bill (“Damn, right!”), or lobbyists and lawmakers (“Bless your heart!”). The sentiments of the people actually earning that money, though, should be afforded more deference between the two.

North Carolina lawmakers returned to Raleigh this week for a “short session” that will mostly focus on modifying the back half of the two-year $37 billion budget signed into law last fall. Current and anticipated surpluses make for much easier work when filling funding gaps, like that faced by the Opportunity Scholarship Program. Yet being flush with taxpayer cash also ignites a base level of conceit that risks undermining the principles and policies that got us here in the first place.

In June of 2021, in response to another relatively large surplus, state Senate Leader Phil Berger, R-Rockingham, said, “A huge surplus does not mean we’re spending too little. It means we’re taxing too much.”

Hear, hear! But after a decade of Republican reforms lowering and flattening income taxes for North Carolinians, the reality is the Tar Heel State still ranks near the middle of the pack when it comes to total tax burden. Neighbors and peer states like Georgia, South Carolina, and Tennessee still burden their taxpayers less than North Carolina.

It’s not as if our tax burden isn’t still lightening up — in the legislative sessions following Berger’s 2021 quip, the General Assembly accelerated scheduled step downs in personal and corporate taxes — but the sheer size of our state government, its budgets, and its reach reveals the truth of Berger’s prior declaration.

Since launching an aggressive tax-reduction plan a decade ago, which massively improved our state economy while better respecting the property rights of its citizens, the conservative motivations of the Republican majority seem to have lost momentum in the 2020s. More recently, the big moves from Republican supermajorities have been to massively expand government entitlement programs like Medicaid, to give away hundreds of millions of dollars to public-private partnerships, or to sock away billions in opaque reserve funds.

When Republicans took control of the legislature in 2011, they passed a budget of $19.7 billion. Last year’s budget weighs in at just under $30 billion, or $37 billion if counting reserve funds. At best that’s a 50%+ increase in state spending, at worst it’s closer to an 85% spike in the State of North Carolina spending taxpayer dollars via government programs and giveaways.

By contrast, the real median household income in North Carolina only increased by about 14% from 2011 ($57,210) to 2022 ($65,070), the last year for which full data is available.

So, while North Carolina state government is flush with all this extra cash, North Carolina families are dealing with inflating costs, and souring prospects in nearly every financial aspect of their lives. Doesn’t that seem out of whack?

As lawmakers get to work modifying the budget and figuring out what to do with yet another surplus, instead of getting caught up in the hubris of expanding entitlement programs, redistributing wealth to subsidize [fill in the blank economic pain point], or granting government largesse to audacious economic development projects, maybe they should just give it back.

Larger and accelerated reductions to personal and corporate income taxes should be on the table, for the very reason leaders articulated in 2021 — they’re taxing too much. They’re spending too much, too; so a genuine effort to apply more moderation on the spending side of the ledger should be front and center. And, importantly, since we seem to have a years-long pattern of revenues exceeding projected spending, perhaps North Carolinians deserve a Taxpayer Bill of Rights policy that dictates that surplus revenues are returned to whom they belong, lest they be reliably abused by the well-meaning to grow the size and scope of state government.

Jeff Moore is Carolina Journal’s deputy editor. Moore has worked extensively in conservative politics, policy, and media in North Carolina, including most recently as the North Carolina Republican Party’s communications director.