RALEIGH, N.C. (AP) — North Carolina Democratic Gov. Josh Stein on Wednesday urged Republicans in charge of the legislature to roll back upcoming income tax rate cuts and scale back private school vouchers that now can be received by families of all income levels.
Stein, who took office in January after eight years as attorney general, made the comments while releasing his first two-year state government budget proposal. He wants to spend $33.65 billion in the year starting July 1 — about $2 billion more than planned for this fiscal year — then increase it by $700 million the following year.
His plan for the nation’s ninth-largest state also seeks big raises for public schoolteachers, more money for child care and affordable housing, and tax breaks for lower- and middle-income households.
“My budget ensures that we will be able to continue investing in our people, meeting their needs, and keeping North Carolina strong,” Stein told reporters.
Stein warns of ‘fiscal pain’
Stein said his budget is balanced, even as a forecast from his budget office and the General Assembly shows year-over-year operating revenues would drop by $825 million in the 2026-27 fiscal year.
How does he do it? In part by asking lawmakers to halt already enacted laws by Republicans that next January would reduce the current individual income tax rate of 4.25% and the corporate income tax rate of 2.25% even further.
“The truth is that we are in for some self-inflicted fiscal pain,” Stein said in asking to maintain the current rates. Otherwise, the individual income rate is also likely to fall even further in 2027 thanks to programmed “triggers” in the law if the state surpasses certain annual tax collection totals.
Stein’s administration has warned that these triggers could mean the state falls billions of dollars short of revenue necessary to provide services in light of population growth and inflation.
Democrats have complained that these rate cuts benefit the highest wage earners and corporations the most. In contrast, Stein does propose some targeted tax breaks for “working families,” including a state version of the federal earned income tax credit.
Republican response
Republicans who will prepare and approve their own two-year budget in the coming months have downplayed forecast shortfalls, saying previous tax reductions have boosted the state’s economy and fiscal picture.
With tax reform a major hallmark of the Republican agenda since taking over the General Assembly in 2011, GOP lawmakers are unlikely to back away from changes.
But they may have to pay more attention to Stein given the GOP is currently one seat short of a veto-proof majority in both chambers. That could give Stein more leverage compared to his predecessor Democratic Gov. Roy Cooper’s last two years in office.
New GOP House Speaker Destin Hall opened the door to considering changes later Wednesday, telling reporters that inflation, which boosts numerical revenues, may have thrown “off our numbers just a little bit.”
But “we’re not going to raise taxes obviously,” Hall said. Republican Senate leader Phil Berger’s office said Stein’s proposal raises taxes by preventing a lower tax rate.
Teacher pay vs. vouchers
Stein also proposed average teacher pay raises of 10.7% over two years, with an emphasis on helping early-career instructors.
Stein said it’s part of a plan to raise North Carolina starting teacher pay from near the bottom in the Southeast to first in 2027.
Essentially Stein’s budget covers these increases by scaling back and ultimately phasing out taxpayer-funded scholarships for K-12 students to attend private schools. The General Assembly made the Opportunity Scholarship program universal in 2023 — meaning families of all incomes can now qualify.
“We have to meet the needs of our public school students,” Stein said.
Hall said he certainly wants to raise teacher pay robustly, but called Stein’s proposal to end the private school scholarships “a nonstarter with us.” Nearly 80,000 students are benefiting this school year from the aid.
Stein’s budget “rips educational freedom and parental choice from hardworking families,” Berger spokesperson Lauren Horsch said.
More Helene requests will come later
Stein’s budget didn’t include a package to address the historic flooding and damage caused by Hurricane Helene in western North Carolina nearly six months ago. He said Wednesday he would issue another separate request in the coming weeks
The General Assembly has already appropriated or made available over $1.1 billion for Helene recovery activities, according to Stein’s office. And a bill going to Stein’s desk this week locates over $500 million more.
Stein, who plans to sign the bill into law, said Wednesday that he’ll also “keep pushing Congress for meaningful help.”
State officials have estimated the storm caused a record $59.6 billion in damages and recovery needs.