In a recent budget proposal unveiling, North Carolina’s Democratic Governor, Josh Stein, urged the state’s Republican-led legislature to reconsider impending tax rate reductions and to scale back the expansion of private school vouchers available to families of all income levels. Since taking office in January, following an eight-year tenure as attorney general, Stein’s proposal for the state’s fiscal landscape entails a $33.65 billion budget for the upcoming year, marking a significant increase from the current fiscal plan and an additional $700 million in the subsequent year.
The governor’s strategy for North Carolina, acknowledged as the ninth-largest state, includes substantial salary hikes for public school teachers, increased funding for child care and affordable housing, and tax relief designed for lower-income and middle-income brackets. “My budget ensures that we will be able to continue investing in our people, meeting their needs, and keeping North Carolina strong,” Stein communicated during his announcement.
Illustrating potential financial pitfalls, Stein cautioned against future deficits, citing projections indicating a decrease in operating revenues by $825 million in the 2026-27 fiscal interval. To address these concerns, he advocates halting forthcoming legislation by Republican lawmakers to enforce further reductions in the personal and corporate income tax rates by January. Without maintaining the current tax rates, Stein forewarned, “The truth is that we are in for some self-inflicted fiscal pain.” Moreover, existing laws may lower the personal income tax rates further by 2027 if state tax collection surpasses certain thresholds, potentially leading to a significant revenue shortfall essential for public services amidst rising population and inflation.
Democrats have voiced that these tax reductions disproportionately benefit corporations and wealthier individuals, which contrasts with Stein’s proposal for tax reductions targeted at “working families,” aligned with a state variant of the federal earned income tax credit.
As Republicans prepare their separate budget considerations, GOP officials have traditionally downplayed potential revenue shortfalls, suggesting earlier tax cuts have bolstered the economic trajectory and fiscal health of the state. With tax restructuring a cornerstone of the Republican governance since 2011, they are unlikely to support any rollback of tax reductions. However, the current GOP legislative configuration lacks a veto-proof majority, potentially enhancing Stein’s negotiating leverage over legislative proceedings compared to the latter years of the former Democratic Governor Roy Cooper’s term.
The new GOP House Speaker, Destin Hall, acknowledged potential adjustments in light of inflation impacts but firmly stated, “We’re not going to raise taxes obviously.” Meanwhile, the office of Republican Senate leader Phil Berger argues that by preventing rate reductions, Stein’s approach inherently constitutes a tax increase.
Regarding educational proposals, Stein has advocated for an average increase in teacher salaries by 10.7% over two years, prioritizing early-career educators with the goal of positioning North Carolina’s starting teacher salaries at the forefront in the Southeast by 2027. His plan suggests these financial augmentations could be offset by gradually retracting the Opportunity Scholarship, a taxpayer-funded program enabling private school attendance, which the legislature recently made accessible to families with varying incomes.
“We have to meet the needs of our public school students,” Stein asserted. However, Speaker Hall dismissed terminating private school scholarships as an option, highlighting the program’s benefit to nearly 80,000 students this academic year. Lauren Horsch, a spokesperson for Berger, criticized Stein’s position, arguing that his budget proposal undermines educational choice and freedom for families.
Another urgent matter, remedying the devastation wrought by Hurricane Helene remains unaddressed within Stein’s initial budget proposal. An additional request for aid in future legislative sessions is forthcoming, he confirmed. The General Assembly has already designated more than $1.1 billion for recovery efforts, with Stein recently authorizing a bill allocating an extra $500 million. The state government estimates that Helene inflicted an unprecedented $59.6 billion in damages in the western region, with ongoing recovery essential.
