Earlier this week, the NC Senate deliberated and voted on legislation to present the voters of the state with a choice on whether or not to amend the state Constitution with a state income tax cap of 5%. It passed on party lines and will be considered by the NC House next week, but not before enduring some criticism from the minority party, who’ve repeatedly (falsely) asserted that tax cuts and caps will lead to revenue shortfalls.
I won’t waste time dispensing with the Chicken Little act of those fear mongering about tax cuts; the truth of the matter has been well-established over the last decade or more.
Rather, it was a fact offered by one senator in support of the bill that should pique any limited-government conservative’s interest: In 2010, the budget was about $20 billion, and now it’s about $30 billion ($37 billion?), while the tax rate has gone from 8% to 4.5%.
Putting the apparent validity of the Laffer Curve aside, you might notice that our state budget has ballooned by more than 50%(!) since 2010. To be sure, our state has grown a lot since 2010, too; climbing from a population of 9.575 million to an estimated 10.8 million in 2024. That’s double-digit (12.8%) growth, but it is nowhere close to increasing by half.
Per capita spending in 2010 equates to approximately $2,000; in 2024 it’s nearly $2,800 (with reserve funds included, it’s significantly higher).
During that period, taxes are down, regulations have been streamlined, and the number of state government workers has more or less plateaued. So, what gives?
Perhaps inflation is a contributing factor, you might observe — life has certainly gotten a lot more expensive in recent years, and North Carolina is not immune to those trends. Here, we find a major culprit of the budget inflation; $1 from 2010 equates to $1.45 in 2024.
Accounting for inflation over the last 14 years, then, certainly explains quite a bit of the budget growth to $30 billion. However, as alluded to above, the latest budget is not constrained to that $30 billion headline figure.
“The General Assembly actually set aside about $37 billion, but that $7 billion in allocations above the reported $30 billion is in the form of budgetary ‘reserves’ being set aside from state revenue,” states Joe Warta in a recent analysis for the John Locke Foundation. “Essentially, the state is allocating that $7 billion to special accounts set up as reserves for future use, but significant portions of it are allocated right away.”
So, the total takings and subsequent allocations of revenue from the taxpayers of North Carolina for the budget is actually $37 billion, more than 23% higher than the headline number. Using that figure would put the per-capita numbers at approximately $3,425, or an increase of around 71% versus 2010 figures, putting the increase well outside of simple inflationary effects.
A contrarian may caution that federal dollars coming back to the state factor in to this total figure, namely in the form of Medicaid and Medicare dollars. It’s a valid point, but we must be careful not to discount the fact that North Carolina taxpayers are federal taxpayers too. Further, in the time period in question, the legislature took state-level actions to expand Medicaid in North Carolina.
Nearly a decade and a half of “fiscally conservative” budgeting has nevertheless produced significantly higher government spending in North Carolina.
A NC DOGE
In recent weeks, following Americans’ clear choice to send Donald Trump back to the White House, much attention has been paid to a unique team of advisors forming an unofficial Department of Government Efficiency, or “DOGE,” to wrestle government spending down. Excitement has grown among those that see the federal government as far too big and bloated at the prospect of meaningful cost-cutting reforms to reduce waste, and maybe even help tackle and bring down the perennial federal deficit.
We don’t have such existential challenges to face in North Carolina, luckily, on account of our balanced budget requirements; but we can certainly take a page from the ambitious cost-cutting playbook of the incoming Trump administration.
When Republicans first wrestled state legislative control away from Democrats in 2010, and effectively pinned tax-and-spend politicians to the mat in 2012, they did so with a similarly ambitious focus on reform. Taxes were too high, spending was too high, and regulations too stifling.
In the 2010s, this reform-minded majority aggressively tackled our excessive personal income tax rates, committed to fiscally conservative budgeting principles, and completed a series of regulatory reforms. North Carolina has boomed relative to our peers ever since.
But the fire that motivated those conservative reforms faded to mere glowing embers some time ago. The most-recent budget cycle exposes this clear loss of energy among self-described conservative lawmakers for shrinking the footprint of state government. Instead of returning perennial surpluses to taxpayers, either directly or via more-aggressive tax reductions, lawmakers have more often found initiatives on which to spend your hard-earned money, in increasingly suspect ways.
Medicaid was expanded, after a decade of practical and principled opposition. Earmarks and corporate welfare incentives still hold as much sway in the budgeting process as ever. Private nonprofits are given half a billion taxpayer dollars without so much as a committee hearing. Those working hard to earn these tax dollars are rarely placed on top of the totem pole.
North Carolina features heavily in the recent national upheaval for reform at the federal level. We should honor that contribution and our citizens with a DOGE of our own, Carolina-style, to reignite the pursuit of a more limited government, focused on core constitutional functions, that aggressively commits each year to tax and spend less of our hard-earned money than the year before.
Such a pivot from the current conservative complacency will go a long way toward making sure North Carolina’s boom years don’t end prematurely.
