RALEIGH – The news that state revenue collections are coming in at $400 million above projections could signal a cut in the corporate tax rate for next year.
The tax reform law passed by the General Assembly in 2013 — lowering personal income tax rates, establishing a flat tax, and reducing corporate income tax rates — included a trigger provision that would cut lower corporate tax rates even more if tax collections exceed revenue projections.
Before the tax reform legislation took effect, the state corporate income tax rate was 6.9 percent. It dropped to 6 percent on Jan. 1, 2014, and 5 percent on Jan. 1, 2015.
If tax collections continue to come in at or above the levels forecast today, the corporate income tax rate would drop to 4 percent on Jan. 1, 2016. If next year’s collections exceed projections, another trigger would kick in, dropping the rate by an additional percentage point on Jan. 1, 2017.
“The Consensus Revenue Forecast released this morning projects that revenue will be at a level that exceeds the corporate tax rate thresholds,” said Melanie Jennings, a spokeswoman for the state Office of Budget and Management.
The forecast indicates that General Fund revenues are expected to grow by 6.1 percent since the 2013-14 fiscal year ended last June 30, 2.1 percent more than originally projected. That growth would trigger the 5 percent rate.
The revised forecast sees General Fund revenues of $21.4 billion in the current budget year, $1.2 billion more than the $20.2 billion trigger set in the 2013 tax reform law and more than the $21 billion in the current budget.
State leaders and a free-market advocacy organization hailed the revenue collections announcement Wednesday as a validation of the 2013 tax reform.
“This surplus is the result of a growing economy, fiscally responsible budget, and tax reform that’s putting more money in the pockets of North Carolinians,” GOP Gov. Pat McCrory said in a statement. “With this revised budget forecast, I’m calling for fiscally responsible investments in savings and reserves, and a new round of investments that will provide services to the people of North Carolina and easing the tax burden on senior citizens and job creators.”
“Two years ago, when the Republican legislature passed the largest tax cut in state history, Chicken Littles on the Left loudly cried North Carolina would lose so much tax revenue that students wouldn’t have teachers, roads wouldn’t be built, and our universities might have to close,” Senate President Pro Tem Phil Berger, R-Rockingham, said in a statement. “But far from starving state government, tax cuts and tax reform have spurred economic growth and job creation — a turnaround that has provided our state with a surplus that will allow us to continue cutting taxes while investing in core priorities like education, infrastructure and public safety.”
“The lower, flat personal income tax rate has spurred economic growth and job creation that in-turn has provided North Carolina with a budget surplus,” House Speaker Tim Moore, R-Cleveland, said. “It is important to note that the revenue surplus, while welcome, still ensures more money in the pockets of working families than before our comprehensive tax reform. We are in good standing to continue, along with our colleagues in the Senate, addressing ways to reduce the tax burden working families feel across North Carolina.”
Americans for Prosperity’s North Carolina chapter also hailed the news.
“Today’s state revenue figures are a testament to the hard work of conservative lawmakers who tackled budget and tax reform in the 2011 and 2013 legislative sessions,” said Donald Bryson, state director of the AFP Foundation. “By first trimming fat out of the state budget, and then offering tax relief to struggling families and businesses while simplifying the revenue code to streamline commerce, Gov. McCrory and state legislators removed barriers to prosperity for millions of citizens.”
Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.