The budget standoff between the North Carolina House and Senate has persisted for the better part of a year. The chief disagreement between the Republicans who run both chambers is over the revenue triggers that will determine whether the state’s income tax continues to fall next year, like it did on the first day of 2026.
The North Carolina Senate would like to get rid of the revenue triggers so that the income tax cuts scheduled for the coming years will definitely take effect. The House, meanwhile, would like to not only keep the revenue triggers, but adjust the triggers so that revenue collections will have to be higher in order for further income tax rate cuts to be enacted. The revenue trigger changes proposed as part of the North Carolina House-passed budget would, based on current projections, prevent the next scheduled income tax cut from taking effect on January 1, 2027, when the rate is supposed to fall from 3.99% to 3.49%.
One member of House leadership, Rep. Jake Johnson (R), recently said he is confident that lawmakers can reach a budget agreement after the March 3 primaries. “By the time we get back up there for the short session, we’re going to have a lot better idea what the economic landscape actually looks like,” Rep. Johnson told WUNC, adding that “I think that is going to give us much more confidence to agree on a tax package.”
Rep. Johnson, however, might be a lame duck when the short session starts this spring. That’s because Rep. Johnson is facing a primary challenge from Mike Hager (R), who previously served as North Carolina House Majority Leader. Hager opposes Rep. Johnson’s effort to weaken the triggers such that they would block income tax cuts from taking effect next year and beyond.
In fact, the revenue triggers now on the books in North Carolina were the brainchild of Mike Hager and former Senator Bob Rucho (R). By making their proposed income tax cuts contingent upon revenue triggers being met, Hager and Rucho were able to convince a majority of their colleagues to vote for tax reform packages that, over the past decade, have taken North Carolina from a progressive income tax code with a top rate of 7.75% to a flat rate of 3.99% today.
Thanks to the revenue trigger-facilitated tax reform that Mike Hager shepherded to passage, North Carolinians have saved billions of dollars and are on track to receive another income tax cut next year. That rate cut, however, will not happen if Rep. Johnson and his House colleagues get their way in budget negotiations.
“For undecided voters in North Carolina’s 113th House District, they have a stark contrast in choices,” said Grover Norquist, president of Americans for Tax Reform, a taxpayer group founded in 1985 at the request of President Ronald Reagan. “They can either go with Mike Hager, one of the guys most responsible for the billions in tax relief provided to North Carolinians over the past decade and whose leadership helped make North Carolina a model not only for conservative tax reform, but also for a host of other pro-growth policies. For voters who don’t want another income tax cut to take effect next year, they can stick with Jake Johnson, who is working to block scheduled income tax relief.”
While North Carolina House Republicans can be commended for studying reforms that could help rein in rising property tax burdens, critics are encouraging them to consider how preventing the income tax from falling from 3.99% to 3.49% next year could more than counteract the relief provided by any property tax limitation measures that the North Carolina General Assembly might pass during the upcoming short session.
A primary loss for a member of House leadership who has been pushing to block income tax relief might weaken the House’s budget negotiating position this spring. So too could the landmark reform that is about to be enacted in neighboring South Carolina, where the statehouse is getting ready for final passage on legislation that would move the Palmetto State to a 1.99% flat income tax in the next five years.
South Carolina lawmakers’ success in making their state tax code more attractive by enacting the nation’s lowest flat income tax rate, coupled with constituent concerns about rising costs, might prompt some North Carolina House Republicans to consider whether now is the right time to prevent scheduled income tax relief. Time will tell.
