It’s the budgeting, stupid

BudgetImage credit: Simon Cunningham via Flikr

The importance of the budget surplus hinges on fiscal responsibility, not economic growth

RALEIGH – It is undoubtedly good news that North Carolina is projected to see a $400 million surplus for this fiscal year. But if you’re thinking that the good news is that politicians in Raleigh have an extra $40 per North Carolinian to spend, you’re a bit off base.

When the news was announced this week, the state’s political leadership and its loyal opposition mostly missed the mark as well:

House Speaker Tim Moore:  “A lot of it is the fact the economy is improving.”

The state’s economy is surely improving, and Republicans should claim some of the credit. But weren’t Republicans the ones who were in charge of preparing the budget forecast against which a surplus (or deficit) is measured?

In other words, if Republicans truly believed that lower taxes and responsible spending levels spur the economy, then that economic growth—and the resulting revenues— should have been baked into their forecast.

Senate Democratic leader Dan Blue tweeted: “57% drop in refunds, loss of over $550B in corp taxes by 2020. $400M surplus from working families.”

Putting aside the incongruity of talking about a “loss” of future corporate tax revenue when responding to news of a current surplus, Blue repeats the trope that the Republican-passed tax cuts somehow raised taxes on the middle class. This is the same error that called “wrong” and a “misreading of an analysis of a 2013 Tillis-backed tax plan” when Kay Hagan tried to use it against Thom Tillis.

Even worse is if Sen. Blue actually believes that a drop in tax refunds has anything to do with revenue (other than timing). Blue is highly educated and has been in the General Assembly for three decades. There are undoubtedly many who believe that one’s tax refund correlates to how much one pays in taxes instead of being related to withholding. But it is hard to imagine that Blue is one of those. In other words, he is shamefully playing on the erroneous ideas of misinformed citizens.

Senate leader Phil Berger: “Two years ago, when the Republican legislature passed the largest tax cut in state history, Chicken Littles on the left loudly cried North Carolina would lose so much tax revenue that students wouldn’t have teachers, roads wouldn’t be built and our universities might have to close. But far from starving state government, tax cuts and tax reform have spurred economic growth and job creation…”

Berger starts out close to the mark, reminding us of the wailing histrionics that liberals showcased when the tax cuts were passed. Back then, all was imminent doom, both for the public fisc and for every man, woman and child in the state.

Yet despite the good beginning, Berger then falls into the same “economic growth” trap as Moore.

Gov. Pat McCrory: “We have a growing economy in North Carolina for the first time in five or six years. It shows that fiscal responsibility does work.”

If the first sentence of the governor’s statement is merely a declarative non-sequitur to the second sentence, then he came closest to the bull’s-eye. The correct interpretation of the budget surplus hinges on fiscal responsibility, not economic growth.

Out of a budget of $20.8 billion, $400 million represents about 2 percent. When we’re talking about a system as dynamic as a state economy, any time we can land within 2 percentage points either way it represents sound forecasting.

It is both truthful budgeting and accurate forecasting that deserve the credit for the surplus. First, the General Assembly and governor have (mostly) moved away from the budget gimmicks of the past when they develop the budget. And second, they actually listen to the forecasts of the economists they employ, instead of assuming undersized outlays and rosy revenue just so they can avoid making tough choices when developing the budget.

When you plan and forecast accurately, a small surplus or deficit is not a big deal fiscally. But it is a big deal to see good budgeting firmly in place on Jones and Blount streets.