NC Budget and Tax Center

Eliminating income taxes not a solution to addressing the ups and downs of revenue

The proposed Senate tax plan and the recently released House tax plan aim to eliminate the personal income and corporate income taxes. These two taxes raise more than $11 billion and represent over half of the state’s total tax revenue. Among the contentions made by proponents of cutting and eliminating income taxes is that doing so will make the state’s revenue system more stable.

A 2013 report by the Center on Budget and Policy Priorities (CBPP) finds that, over the long-term, income taxes grow more than other state taxes and better reflect economic performance. Importantly, the income tax is not significantly more unstable than sales tax when viewed over time. And the benefit of the long-run growth of the income tax is lost with its elimination. The CBPP report highlights that from 1990 to 2007 state spending grew by 3.3 percent per year, while the personal income tax and sales tax grew by 3.3 percent and 2.4 percent per year, respectively.

The House and Senate tax plans would increasingly rely more on the sales tax to replace revenue lost from eliminating income taxes. As the CBPP report highlights, the sales tax is less responsive to economic growth than an income tax over the long-term and by eliminating income taxes, the state will not fully capture the upside during economic boom periods.

In previous blog posts, I highlight the importance of maintaining a progressive personal income tax and the corporate income tax as components of the state’s tax system. In combination with this evidence, the recent report by the Center on Budget and Policy Priorities further builds the case that eliminating income taxes is a losing strategy and does not promote economic opportunity for all North Carolinians. Not only will families be harmed, but the foundations of economic growth will also be threatened.

6 Comments

  1. Doug

    May 23, 2013 at 4:36 pm

    You actually have a point there. Although this “revenue” ….more commonly known as tax receipts….is not what the problem is. The problem is that the politicos see more receipts in the good years, spend like a drunken sailor assuming good timese will roll forever…. and when the recipts go down they don’t have the guts to actually cut spending because the government teat can never be weaned away.

    Basically we don’t have a “revenue” problem, it is all about the spending being out of control on things the government should not be doing. If the government took in 100% of every dollar in the state they would still spend 10% more dollars and cry that it is not enough.

  2. david esmay

    May 23, 2013 at 9:31 pm

    Doug you just described the Bush administration.

  3. Frances Jenkins

    May 23, 2013 at 9:44 pm

    Or the Obama years

  4. Doug

    May 24, 2013 at 12:59 pm

    Yeah, Barry and the democrats took it to a whole nother level. Going from $10 trillion to what is expected to be roughly $24 trillion by 2016 is a never seen level of incompetence. Of course Barry exceeds even Jimmy Carter levels of incompetence, it is bad when you wish for the good ole’ days of Carter. At least there was a new level of excellence on the horizon in that case, now there is only bleakness as far as the eye can see.

  5. david esmay

    May 26, 2013 at 5:44 am

    Of course a conservaturd would view the most corrupt administration in history as a “new level of excellence on the horizon”, to bad Raygun’s deficit spending sent us on a downward spiral.

  6. Doug

    May 27, 2013 at 2:48 pm

    Well dave, more name calling and needless name calling, you have once again validated my points for me.. Otherwise you would have some logic and facts on your side to present.