As North Carolina House and Senate lawmakers negotiate a final budget deal, tax policy is likely to be a major sticking point between the two chambers.
House and Senate Republicans have already agreed to cut the state income taxes in tax year 2026 by a quarter percent, from 4.25% to 3.99%.
The Senate budget proposes an even bigger tax cut in 2027, lowering the rate another half-point to 3.49%. But the economic forecasters who work for state lawmakers say that's likely to leave the state in the red in 2027. That could mean cuts to services, even as the state is growing quickly. That's why House leaders are proposing to put any future tax cuts on hold.
For the average taxpayer making $50,000 a year, the Senate plan would put an extra $186 or so in their pocket every year. That's about $15.50 a month.
WRAL News asked Raleigh restaurant worker Kerry Thomas what he would do with the extra money.
"Probably groceries or something like that," Thomas said. "With this economy, everything counts. You got to bend pennies to make it."
But he's skeptical about what would be cut to pay for the tax cut.
The cut would mean the state would give up about $2 billion a year - or just over 5% of its budget. Under current economic projections, that would result in a budget deficit. Unlike the federal government, North Carolina cannot have a deficit, so there would likely need to be some cuts to government services like schools and roads to cover the shortfall.
"No money is free money," Thomas said. "I know there's a lot of trouble with the [U.S.] Department of Education right now, and I've got two little ones, so I'm Team Education."
Environmental engineer Matthew Upperle Upperle works with a lot of people in government. He told WRAL he's also concerned about the potential for federal funding cuts as President Donald Trump looks for savings to pay for his proposed federal tax cuts.
"I'd prefer to keep the services intact," Upperle said. "If there's going to be more uncertain funding coming from the federal government for certain services, I think I personally would prefer to keep the state budget more stable."
Senate Leader Phil Berger doesn't believe the Senate's proposal would lead to cuts or make the state budget less stable. He told reporters he believes the economic forecasters are wrong, and the state's rapid growth will keep tax dollars rolling in.
"It is our belief that as the economy continues to grow, we will see - even at lower rates - additional revenue," Berger , R-Rockingham, said at a news conference several weeks ago.
House Republicans in both parties are taking a more cautious approach, pausing future tax cuts for now until the state's revenue is higher. They say the state's rapid growth will leads to more demand for government services. They're also concerned about the money that will be needed for Helene recovery over the next few years, especially since federal relief funds have been slow in coming.
In 2023, House and Senate Republicans agreed to cut taxes in 2027 by half a point if the state brought in more than $33 billion in 2025-26. State revenue is forecast to meet that threshold.
But House lawmakers now say the revenue target they agreed to in 2023 didn't adequately account for the past two years of inflation and its effect on state expenses. They're proposing to raise the target to $36 billion instead.
"These are prudent and wise measures that restore the resiliency of our state budget in a fiscally sound way," Rep. Dean Arp, R-Union, said of the House's proposal.
Berger opposes raising the target. He told reporters last week he would consider it a tax increase.
"That looks to me like an attempt to renegotiate an agreed settlement," Berger said, noting that the House change would keep the extra $2 billion in state coffers. "More money out of the pockets of North Carolinians as a result of tax policy sounds like a tax increase to me."