In advance of Governor McCrory’s first State of the State address, the director of the N.C. Budget & Tax Center has a good rundown of what to listen for this evening. Here’s Alexandra Sirota’s piece from the News & Observer:
Prominent North Carolina lawmakers have said they want to make significant changes to North Carolina’s tax system, but when examined closely, it’s clear these changes are not for the better. In fact, the proposals mentioned would increase taxes on middle-class and low-income families, give tax breaks to the wealthy and mean we can’t afford to make necessary investments in things that help drive our economy, like quality education that produces a skilled work force and a state of the art transportation system that enables businesses to get their goods to market.
We haven’t heard much from Governor McCrory about what he thinks of these proposals and whether he’s willing to sacrifice North Carolina’s tradition of high-quality public schools and safe communities to give tax breaks to corporations and the rich. But we might get some answers in the governor’s State of the State address today.
Here are a few things to listen for during the speech.
First, will the governor propose eliminating or significantly cutting the personal income tax or the corporate income tax? Doing so would undermine the state’s economic competitiveness and hurt our ability to make investments that increase quality of life for middle-class and low-income families. This includes investments vital to our children’s future, including K-12 schools, community colleges and state universities.
State funding for such investments is now well below what it was before the Great Recession hit, and communities and families across the state are hurting as a result. School buses are in disrepair and students aren’t getting the time or attention they need from their teachers who are facing larger class sizes and fewer resources. More and more kids aren’t getting early learning opportunities they need to be ready for kindergarten. Our courtrooms don’t have the staff necessary to keep proceedings running smoothly. And assistance seniors need to stay in their home is harder to get because of growing waiting lists.
Without a personal income tax, it will become more difficult to make these investments, setting back our economic recovery and making it harder for low-income people to build a better life and move into the middle-class.
If the governor says he supports these tax cuts, we should listen closely to hear how he will address the massive loss in revenue. Will he make further cuts in these key investments, or will he ask taxpayers – mostly likely low-income and middle-class people – to pay more of some other tax? The reality is that he will have to do one or other.
If lawmakers eliminate the personal income tax or the corporate income tax—two of the state’s biggest revenue sources—they will have to raise other taxes to make up the difference. In the case of eliminating the income tax, the sales tax will need to be expanded and raised. Since low-income and middle-class people pay a higher share of their yearly earnings in sales tax than the wealthy do, such a policy will shift the responsibility of taxes farther down the income scale.
For decades, North Carolina’s personal income tax has partially corrected this imbalance. But if the personal income tax goes, our tax system will favor the wealthy more than ever.
It will be interesting to hear whether McCrory repeats the flawed ideology that tax cuts improve a state’s economy. The evidence is clear: Tax cuts in recent decades have not improved savings, investment or growth. Rather, states with higher income taxes have outperformed those with no income taxes because the investments made possible through taxes—quality schools that produce a skilled workforce, a modern transportation system, and safe communities—build a foundation for economic growth.
The reality is that North Carolina’s taxes are in the middle of the pack. And more importantly, tax rates are not the reason businesses or individuals decide to relocate. For the past several decades, businesses and people have come to North Carolina because of our commitment to a high quality of life, good schools, innovation, and other supports for business and entrepreneurship.
As McCrory shares his plans for the next four years tonight, the role of taxes will be central — whether directly stated or not. Let’s hope he takes the opportunity to reject the proposals of other lawmakers and instead, lead our state to a more prosperous future.