RALEIGH (June 26, 2025) – The word of the year for 2025 is ‘uncertainty.’ So leaders of the state House think it’s a good idea to slow down state tax cuts scheduled
for the next two years.
“For the House it’s pretty simple,” state Rep. Donny Lambeth, R-Forsyth, Senior Chair of the House Appropriations Committee, says in the accompanying video.
“We’ve been hit with major cost of the disaster, Hurricane Helene,” Lambeth says. “If the last bill that we just filed gets funded, we’re gonna be close to $2 billion of state taxpayer money to help with the hurricane relief effort – major investment in that. And we’re not finished – there’ll be additional money.
“And then over the last couple years we’ve seen inflation – inflation on our building programs, inflation pressures unlike we’ve seen in a number of years.”
In February, economists for the Governor’s Office and the General Assembly’s non-partisan Fiscal Research Division forecast that under scheduled tax reductions, the state would see revenue decline by $823 million by 2026-27.1
Then in May, with the national economy weakening, the same team of economists revised those projections downward by more than $200 million in each of the next two years, for a projected revenue shortfall of more than $1 billion in 2026-27.2
The House took those projections seriously. The Senate did not.
House leaders decided to take a more cautious approach than the Senate and slow personal income-tax cuts scheduled for the next two years.
That helped the House propose far more generous – and overdue – raises of 8.7% over two years for the state’s public-school teachers than the Senate proposed.3 North Carolina currently ranks 43rd among the states in average teacher pay and 39th in starting teacher pay.4
DISAGREEMENT OVER tax cuts is a major reason why legislators plan to recess at the end of this week and perhaps not return to Raleigh until after Labor Day.
“We felt like we’re not eliminating a tax cut,” Lambeth says. “We actually are trying to slow it down a little bit to give us a little breathing room between how much we’ve been spending and how much we’re bringing in.
“And then with the economists telling us, ‘The economy’s slowing down, you’re in for a little bit of a recession here, it’s going to be a little bumpy ride,’ we felt strongly that we’re not doing away with it – we’re not raising taxes, we’re still reducing taxes – but we need to slow down the rate by which we’re expecting to reduce them at a fairly significant rate.”
LAMBETH DETAILS some of the tax reductions the House does still include in its budget proposal.
“Everybody’s got an opinion about taxes. But I can tell you one of the things when I’m in my community is people ask me, ‘Are you gonna do the tax-free weekend again?’” he says.
“People tell me they go to South Carolina for the beginning of August for vacations because they do tax-free weekends. Kids going back to school, and they buy their computers, they buy the supplies, clothes.
“Tax-free weekend has not been in North Carolina (in) I think it’s over 12 years now. People remember it like it was last year, and they keep asking, ‘Why are you not doing tax-free weekend?’ It’s relatively inexpensive, quite frankly, and it’s a very popular item with the public.”
So the House’s version of the budget restores a tax-free weekend in North Carolina in early August, starting in 2026. (This helped win some House Democrats’ votes for the budget. Longtime state Rep. William Wainwright, D-Craven, an early champion of tax-free weekends for school supplies, is no doubt applauding somewhere.)
THE HOUSE budget proposal also raises the standard deduction for personal income-tax filers.
“There are still a lot of people that take the standard deduction,” Lambeth says. “We’ve actually increased the benefit to them by having a higher standard deduction, which will give them a lower tax bill.”
It’s yet another reason to support the House budget over the Senate’s.
1 https://www.osbm.nc.gov/consensus-revenue-forecast-fy-2025-27/download?attachment.
2 https://www.osbm.nc.gov/revised-consensus-revenue-forecast-may-2025/open.
3 https://publicedworks.org/2025/05/house-budget-shows-promise-for-teacher-pay/; https://www.wral.com/story/nc-house-approves-spending-plan-setting-up-showdown-with-senate/22018068/.
4 https://publicedworks.org/2025/05/nc-teacher-pay-now-ranks-43rd/.
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