Taxpayers pay state income tax sooner under tax plan

Proponents continue to make the claim that all North Carolinians will benefit from changes in the tax plan signed by Governor McCrory earlier this year. The reality is that the tax plan includes costly income tax rate cuts and the elimination of credits and deductions that will mean 35 percent of taxpayers will pay more in income taxes. When ALL tax changes – income AND sales tax changes – are taken into account middle and low income taxpayers with income below $84,000 (the bottom 80 percent of taxpayers) on average will see their total state and local taxes increase, making the tax code even more upside down.

One of the particularly common refrains is that families will be protected because the standard deduction is doubled. However, for many, the doubling of the standard deduction is not sufficient to make up for the loss of the personal exemption, the refundable state Earned Income Tax Credit and other deductions and credits. 

In fact, the first dollar of income is taxed sooner than under current tax law. Under current law, a two-parent family of four earns around $23,400 in income before beginning to pay a state income tax on the next dollar of income; however, this family will begin paying a state income tax upon earning $19,400 in income. This means that an additional $4,000 will be taxed that under the previous tax code would not have been for these families.  For a single-parent family of three, the income threshold before beginning to pay the state income tax falls to $16,400 from $19,100 – here an additional $2,700 will be taxed that under the previous tax code would not have been for these families.

The claim that the tax plan cuts the personal income tax rate for all taxpayers does not mean that all taxpayers actually will see more in their paychecks as a result of the tax plan. Moreover, because 65 percent of the income tax cut benefits those who are millionaires, it makes our already upside down tax system even worse. Simply put, the tax plan is not a winner for everyone.

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