NC Budget and Tax Center

Flat Tax Equals Eroding Revenue

A major detail has been ignored in the rush to adopt a flat income tax rate. With a flat income tax, revenues will grow more slowly over time, leaving North Carolina unable to maintain its most important investments, such as education, which has already suffered from significant spending reductions in recent years. That means we will have to raise other taxes to make up the difference or suffer the consequences of underfunding our priorities.

In the presentation to House Finance of the bill, Representative Lewis stated that the income changes–including most significantly the adoption of a flat tax–would hold revenue growth to about 4.5 percent per year. If revenue had grown that slowly over the past 20 years, North Carolina would have been unable to make  many of its most important investments. In 2007, for instance, North Carolina would have had nearly $5 billion less for North Carolina’s schools, colleges and universities, roads, public safety, and other services. That $5 billion is more than our budget combined for the Department of Health and Human Services, Department of Commerce, Department of Justice, Indigent Defense Services PLUS funds to address the NC pre-K waiting list and half of the child care subsidy waiting list.

Even this year, House Plan and Revenue Growthrevenues would have been $1 billion less—that’s what we pay for the entire community college system. Moving forward with a flat tax will leave North Carolina unable to maintain its most important investments, which are the very building blocks of a strong economy and strong future.

The income tax is more than half of North Carolina’s general tax revenues. If it is slashed, as it would be under the various tax cut plans, we will have to raise other taxes, further cut services, or both, to make up for the revenue loss. This reality is already reflected in some of the tax plans. The House plan, for example, expands the number of services subject to the sales tax and maintains the current sales tax rate to help afford the shift to a flat tax. But even with that expansion, the plan would bleed the North Carolina of of $1.5 billion in revenues over the next five years, or $500 million annually once the plan is fully implemented. Unless we rely solely on cuts to make up that difference, sales and property taxes are likely to go up.

Moving forward with a flat tax will leave North Carolina unable to maintain its most important investments, which are the very building blocks of a strong economy.

Check Also

Early childhood educators in NC struggle to make ends meet, afford their own children’s early education

One issue central to ensuring the quality of ...

Top Stories from NCPW

  • News
  • Commentary

The political compromise that repealed HB2 was enough for the NCAA and ACC, both of which have retur [...]

Conference comes a day after new report lauds benefits of same-day registration The new line-up for [...]

North Carolina’s largest public school system may be warning of “enormous disruptions” without speed [...]

Carol Turner hadn’t lived in North Carolina long before last November’s election. A retired nurse, s [...]

How many times do we have to say it? Well, it’s worth repeating – especially in the aftermath of rec [...]

As the national pundits weigh in on President Trump’s first 100 days in office and the General Assem [...]

How the General Assembly is spending “crossover week” and what it ought to be doing The last week of [...]

To casual observers, the recent controversy surrounding public school class-size mandates in grades [...]

Featured | Special Projects

Trump + North Carolina
In dozens of vitally important areas, policy decisions of the Trump administration are dramatically affecting and altering the lives of North Carolinians. This growing collection of stories summarizes and critiques many of the most important decisions and their impacts.
Read more


HB2 - The continuing controversy
Policy Watch’s comprehensive coverage of North Carolina’s sweeping anti-LGBT law.
Read more