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Experience of Low- and Middle-Income Taxpayers Down the Road if Senate Tax Plan Passes

If the Senate tax plan moves forward, it is very likely that many low- and middle-income taxpayers will see their tax loads increase .

The Senate plan, in addition to the House Plan, do not include the Earned Income Tax Credit, the best tool for ensuring that working low- and middle-income taxpayers [1] are not carrying a heavier tax load than their wealthy neighbors. This decision by Senate and House leadership to end the Earned Income Tax Credit will impact more than 907,000 North Carolinians [2].

When you look at the Senate plan combined with the end of the state Earned Income Tax Credit and keep in place the local tax on groceries, it’s clear that low-income working families would pay more, while the rich pay less.BTC_Tax Shift Continues_Senate Tax Plan [3]

While the Senate tax plan proposes the elimination of the local food tax, it is difficult to imagine that it won’t remain in place. When local governments start receiving less funding from the state because of the Senate’s tax plan, local officials will have to turn to the only tools they have available to raise revenue needed to pay for services. Otherwise, the only alternative is to reduce services that North Carolinians value including playgrounds for children, trash collection, public libraries and supports to seniors and children in need. The Senate tax plan allows counties to hold a referendum on the grocery tax, and even then, after five years the local food tax can be reinstated without referendum.

A continued local food tax and elimination of the state Earned Income Tax Credit is key to understanding how low- and middle-income taxpayers could be treated under the new tax code if the Senate plan moves forward. The bottom 80 percent of taxpayers on average would see their total taxes as a share of their income increase while the top 1 percent continues to get a significant cut in taxes as a share of their income.