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Newest Senate Tax Plan shifts tax load to low- and middle-income families

The newest (5th version) of the Senate tax plan is said to be a modified version that addresses various concerns in early versions of the plan. Nevertheless, the bill maintains its core elements – huge tax cuts for the wealthy and profitable corporations and significant revenue loss – and returns to expanding the sales tax to more goods and services (though not as comprehensive as one of the earliest versions) in an effort to reduce the revenue loss slightly from the prior $1.3 billion to now nearly $1 billion.

The repeated claim made by Senator Berger and proponents that all taxpayers would see an income tax cut under the modified tax plan is simply not true. Cutting the personal income tax rate may appear to benefit all taxpayers but it doesn’t and the tax plan has many other moving parts that will shift the tax load to low- and middle-income taxpayers. For example, by eliminating the personal exemption allowance, the state EITC, and the additional standard deduction allowance for seniors, many taxpayers fare worse under the newest Senate plan compared to current tax laws.

Below are examples of particular taxpayer profiles in which the taxpayer would pay more in income taxes under the newest Senate plan. And because the plan taxes more goods and services, low- and middle-income taxpayers would pay even more in taxes – both directly and indirectly – because they spend more of their annual income on goods and services subject to sales and excise taxes.

**NOTE: The tax rate cut does not benefit all taxpayers. Many low-income folks pay $0 now and would pay $0 under the new plan. If the plan had a state EITC, these taxpayers would get a refund.

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The newest Senate tax plan follows the same approach of increasing the tax load to low- and middle-income taxpayers – particularly those with children – while North Carolina’s richest taxpayers would get a huge tax cut. A better way to look at the population level impact of this plan is to use an economic incidence model [2].  This method tells us that the Senate tax plan fails to address the state’s upside-down tax system and instead tilts it even more to favor wealthy individuals and profitable corporations, in which 56 percent of the net tax cut [3] would go to the richest 1 percent of taxpayers.

This scenario is unacceptable for North Carolina.