The North Carolina Senate’s tax reform plan released today is long on promises and short on details. It is unclear how fair the purported “Tax Fairness Plan” will prove to be. Several red flags are raised by this plan, which should raise the alarm for all those concerned with a budget and tax system that supports economic opportunity and the foundation of economic growth.
One red flag is the surprising lack of details about how tax cuts will be offset by expanding the sales tax base enough to keep our vital services and infrastructure in place.
Another red flag is that this plan does not purport nor attempt to raise the same level of revenue as the state is currently taking in. The plan as outlined by Senator Berger will result in at least one billion dollars in revenue loss—revenue that could be dedicated to important and necessary services and infrastructure in the state. For example, one billion dollars is equal to the entire community college system budget in North Carolina.
Yet another red flag is that the plan is touted as the “largest tax cut in North Carolina history” which in actuality translates to the largest tax shift in North Carolina history. The majority of middle and lower income North Carolinians will pay proportionally more of their incomes towards taxes than the wealthiest in the state due to rate cuts in both the personal income and corporate income taxes being offset by an expansion of the sales tax base. Another example of this shift is the elimination of the EITC in the plan, which will equate to lost income for lower wage workers.
A final point that should raise a red flag for all North Carolinians is that this tax plan rests on the unfounded assumption that tax cuts result in economic growth. However the experience of other states and research shows that income tax cuts are not a good strategy for growth and put at risk the foundations for economic growth.
While North Carolina’s tax system clearly needs to be modernized, the Senate plan takes the state in the wrong direction. Fairness, equity and stability should guide our tax reform decisions, not a race to the bottom of tax rates in the region based on the faulty assumption that tax cuts create jobs.