Unclear how tax revenue will affect state's budget

N.C. officials are nervously anticipating the state's income tax returns which are due today.

Officials at the N.C. General Assembly Fiscal Research Division are estimating a $2.2 billion shortfall for the current fiscal year's budget of $20.6 billion.

But once income taxes are calculated that deficit could increase or decrease depending on how much tax revenue is collected.

Because there has been a decrease in consumption and an increase in unemployment rates in the state from last fiscal year the shortfall represents a 5.9 percent decline in the general fund which is funded by individual income taxes and sales taxes.

In the past about 30 percent of the year's surplus or shortfall has come from April's personal income tax payments. Officials are expecting the biggest upward or downward swing in revenue this month.

According to N.C. General Assembly Fiscal Research Division a shortfall of such magnitude is uncommon for the state because there is usually a surplus at the end of the year.

Despite the shortfall" the N.C. Senate passed a budget of approximately $20 billion last week for the next fiscal year.

""The Senate budget bill will focus on education" providing jobs and health care for the uninsured folks" said Sen. Linda Garrou, D-Forsyth. We thought it was a good bill for this time in our state's history.""

Some legislators are expecting a decrease in income tax revenue" and therefore an increase in the budget deficit.

Rep. Jennifer Weiss D-Wake chairwoman of the finance committee" said she is expecting the House's version of the budget to be more conservative because the income taxes could further increase the deficit.

""We'll have the benefit of knowing what the revenue outlook is" she said. Every year" we have an April surprise. This year it's not going to be a good surprise.""

Roland Stephen" assistant director at the Institute for Emerging Issues at N.C. State University" said the state needs a tax reform to make sure such shortfalls do not occur in times of economic depression.

""Our state revenue won't bounce around so much"" he said. We won't have to make tough choices about cutting programs.""

Stephen said the economy has transformed into a service economy from a manufacturing economy and the state's revenue system should reflect that change.

N.C. legislators should increase the sales tax base by taxing services" which will then decrease taxes across the board he said.

Corporate taxes which make up 5.6 percent of the state's funds should also be broadened Stephen said.

While tax reform will not improve the state's shortfall this year he said" it can reduce the deficit in the future.

""We believe in a classic tax reform ­— simpler" fairer" less volatile and more pro-growth. ""



Contact the State & National Editor at stntdesk@unc.edu.