Spotlight Report

It’s Spending, Not Taxes Lawmakers, Media Misstating Cause of Budget Gap

posted on in Spending & Taxes

Since the end of the 1998 legislative session, critics of the past four years of modest — and welcome — tax relief in North Carolina have been working hard to promulgate a myth. The myth is that the state’s efforts to reduce taxes have been excessive and are now presenting the 1999 state legislature with a severe budget crisis. Senate President Pro Tem Marc Basnight has even suggested that the state may have to consider tax hikes or a lottery as a result of cutting taxes “too deep.”1

This is absolute nonsense. As official budget statistics clearly show, the General Fund tax relief of the past four years will have a combined fiscal impact in 1999-00 of about $1.1 billion. But during the same period, rapid spending growth added $3.7 billion to the state budget. It is this massive increase in new spending, not tax relief, that has created gaps between planned spending increases and available revenues.

A simple calculation demonstrates the folly of the state’s reckless spending habits during the 1990s. According to legislative staff, court settlements and other pressures will create a nonrecurring budget gap of up to $800 million in FY 1999-00. The recurring budget, allowing for continuation as well as the Hunt administration’s planned teacher pay and Smart Start expansions, is facing a smaller gap in the range of $150 million to $250 million.2 If the legislature and administration had simply restrained spending growth by 1 percent per year since 1993, there would be more than $700 million in additional revenues in 1999-00 — erasing most of the problem.

The problem isn’t tax cuts or even court orders. It’s Raleigh’s addiction to spending.

John Hood, President

Graph of Spending Growth and the Budget Gap 1993-1999 Graph of Tax Cuts vs. New Spending 1995-1996 and 1999-2000

  1. Rob Christensen, “Tax hike may be needed, Basnight says,” The News & Observer, January 14, 1999.
  2. “Rough Analysis of General Fund Availability,” Fiscal Research Division, January 11, 1999.

Donate Today

About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.