“North Carolina State Legislature Building” by Dave Crosby is licensed under CC BY-SA 2.0. https://www.flickr.com/photos/wikidave/4079965287/in/photolist-7dwTx6-rLdJ4H-eF5V2R-eFMTdC-eF6DxB-g1vCAm-eFL5Ez-eFcvYW-eFcB2d-eFKQnc-6XYDga-eF6FDM-mjMwYD-eFbWQ7-mR8fy6-g1w5yT-mRaxFB-mR9c3K-mR93Db-eFcDnW-mRcgdU-mRb4wR-hEijaU-eF5LCX-mRa8Se-eFboBL-mRcok9-Ti3

Today, the North Carolina Senate passed the new compromise state budget with a bipartisan 41-7 vote. The North Carolina House will soon follow suit and send the new budget to the desk of Governor Roy Cooper (D). Governor Cooper will reportedly sign it, thereby enacting another round of significant tax relief. 

The compromise budget lowers North Carolina’s personal income tax rate from 5.25% to 3.99% over six years. The standard deduction and child tax credit would be increased, while military pensions would be exempt from state income tax. The corporate tax rate, which is now at 2.5%, would be phased out over six years, starting in 2025 and continuing until it is completely eliminated in 2031.  

The new North Carolina budget also gives state employees a 5% pay raise over the next two years along with a $1000 bonus. Public school teachers could receive a bonus of up to $2800 while a salary supplement will be given to teachers in low wealth counties to help them retain employees. The minimum wage for other public school employees will increase to $13 this fiscal year and $15 the next and education funding will increase overall.  

The new budget does not include Obamacare’s Medicaid expansion, but does expand the entitlement program to cover 12 months of postpartum care. $6 billion will be added to the State Capital and Infrastructure Fund (SCIF) to be used to build, renovate, or repair buildings for various state agencies. There will also be new to the governor’s emergency powers starting in 2023. The full budget will cost $25.9 billion this fiscal year, and $27 billion the next one. 

Governor Phil Cooper and Republican Legislative leaders negotiated for months to find common ground. While no deal was made, compromises such as employee pay raises and increased education spending have given both sides hope, even if neither got everything they wanted. The governor expressed openness to signing the budget but made no commitments. His spokesperson Jordan Monaghan responding to questions saying, “The Governor and his staff are reviewing the budget.” 

Senate Leader Phil Berger is optimistic, “We have made significant progress over nearly two months of good-faith negotiations with the governor, and I’m optimistic that the budget will have a strong bipartisan vote and that Gov. Cooper will sign it into law.”  

If the bill is passed by the Senate today, it will be voted on by the House tomorrow. If passed by the House, the budget will go to the governor’s desk. There, Governor Murphy will have the choice to veto the bill, sign it, or allow the budget to pass into law without his signature. If he does veto, Republicans will only need three House Democrats and two Senate Democrats to vote “yes” to override.  

Only eight years ago North Carolina had a progressive personal income tax system with a top rate of 7.75%, the highest income tax rate in the southeast. With the enactment of this new budget, North Carolina will soon have a flat income tax of 3.99%. North Carolina had the highest corporate tax rate in the southeast only eight years ago. Today North Carolina’s corporate rate is the lowest in the nation and will be on the path to elimination with the enactment of this new budget. North Carolina is a testament to how, no matter how uncompetitive a state tax code gets, lawmakers can take steps to rectify it in fairly short order.