Legislative leaders are seeking to further reduce and eliminate North Carolina’s personal income tax, despite the fact that such a plan would make the state’s tax system more regressive by shifting the tax load onto those least able to afford it. Broadly speaking, this tax shift would have huge implications for North Carolina’s low- and middle-income residents, as a new NC Budget and Tax Center report shows.
But as Dave Ribar, an economist at UNCG, points out in his blog Applied Rationality, older adults would be disproportionately impacted by the Civitas/Laffer/Senate plan that calls for elimination of the state’s personal income tax.
Tax policies that benefit older adults by reducing the taxes that they pay—such as the exemption of social security income, partial exemption of pension income, and higher standard deduction—would go away with the elimination of the state personal income tax. Spending patterns are also unique for the average retiree, argues Ribar. An increased reliance on the regressive sales tax would hit retirees harder because they spend a greater share of their retirement income on consumption items—particularly items such as food and prescriptions that would be newly taxed at the state level under this plan.
Like the general population, there are wide income gaps among older adults. In North Carolina, nearly 1 in 10 seniors live in poverty. Astonishingly, the Civitas/Laffer/Senate plan could end up pushing more seniors into poverty, especially the 7 percent of the state’s seniors who are already living just above the poverty line. At the very least, this flawed plan would undermine the way in which the state has designed policies to provide greater retirement security for older North Carolinians. But as Ribar points out, many middle- and higher-income retirees would also absorb some of the burden resulting from the tax shift as proposed under the flawed Civitas/Laffer/Senate plan.
The Civitas/Laffer/Senate plan embraced by legislative leadership fails to meet the basic standard of true tax reform—it is merely a great tax shift—and seniors would be among those disproportionately affected.