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NC Republicans take "told you so" moments on taxes, unemployment debt; more changes ahead

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RALEIGH, North Carolina — It's hard for North Carolina Republicans to say they haven't gloated even a little over milestones for two major pieces of legislation they passed in 2013. It's also easy for some GOP leaders to feel confident about their next round of policies.

Legislative leaders and Republican Gov. Pat McCrory celebrated last week repaying early $2.5 billion in debt owed the federal government for unemployment benefits with a photo-op of cutting a Washington "credit card" with an oversized pair of scissors.

The next day McCrory disclosed a projected $400 million surplus for this year's budget — the first fully counting on the 2013 tax overhaul law for revenues — at a public meeting of county commissioners, not with a press release. The over-collections contrasted with earlier projections of a shortfall Democrats and their allies said would prove the tax overhaul was ill-advised.

"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," said Senate leader Phil Berger, R-Rockingham, in a statement.

While lawmakers and McCrory are now talking fiscal caution moving ahead, resolve to expand Republican policies appears to have crested with last week's announcements.

The news means "this is something that works, and we should continue moving in that direction, because what it ultimately will mean is more jobs and more prosperity for people in our state," said Sen. Bob Rucho, R-Mecklenburg, a key lawmaker on tax and unemployment insurance policy law. He praised the tax changes during a Senate floor speech last week.

More tax changes are likely to come.

The 2013 tax law, which cut income tax rates while scaling back deductions and credits, automatically reduces the corporate income tax rate if certain revenue goals are now met. According to a memo from government economists, the triggers will be reached, meaning the current 5 percent rate will fall to 4 percent in 2016 and 3 percent in 2017.

Legislative leaders also say they'd like to return some of the surplus to the public, perhaps in a tax rebate. "We ought to give some of it back to our constituents. It's their money to start with," said House Majority Leader Mike Hager, R-Rutherford.

Consensus also appears building to restore all or part of a 2013 tax law provision that eliminated the deduction of unreimbursed medical expenses, leaving many older adults with higher tax bills. Rucho and Hager also said the GOP should keep shifting North Carolina's tax system toward collecting sales and use taxes and away from income taxes.

Democrats still believe GOP decisions were flawed and shouldn't lead to what they consider more aggressive Republican policies.

While businesses have been paying more unemployment insurance taxes to help pay down the benefit debt, most of the accelerated repayments came down on reducing benefits to displaced workers, according to legislative researchers. And some small businesses are joining others who say they had higher income taxes from the 2013 tax law.

"One thing's for sure — on April 15, people realized that they were paying more taxes than they paid before," said Senate Minority Leader Dan Blue, D-Wake. Republicans counter that on average people in all income groups have benefited from the income tax changes.

Alexandra Sirota, director of the liberal-leaning North Carolina Budget & Tax Center, said other states also are seeing increased revenues without tax changes North Carolina passed.

The surplus is "not a sign that North Carolina is in a stronger position as a result of the tax cuts," Sirota wrote online. The state GOP put out a news release criticizing center staffers for earlier predictions of a large revenue shortfall this year.

McCrory, who credits the surplus in part to the tax changes, said last week he hoped elected officials would learn from policies that worked and make slight revisions when needed.

"I don't believe in spiking the ball, but we do need to recognize this good news, but be responsible with his good news," McCrory told reporters. Later in the day, the governor cited the surplus and unemployment debt repayment in a fundraising email for his re-election bid.

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