NC Budget and Tax Center

More corporate tax cuts on horizon as state leaders look for funding for teacher pay raises

Last year state leaders passed a tax plan that will overwhelmingly benefit the wealthy and profitable corporations. The plan does little to rid the tax code of costly tax loopholes, it makes the state’s upside-down tax system even worse, and it reduces annual revenue by more than $650 million once all the new tax changes are in place.

As Gov. McCrory and state leaders try and “find’ revenue to provide a modest pay raise to only a portion of North Carolina’s public school teachers, more tax cuts for profitable corporations look to be on the horizon.

This week BTC released a policy brief that highlights an arcane tax policy change proposed by members of the NC General Assembly’s Revenue Laws Committees. This tax change – referred to as a single sales factor (SSF) apportionment formula – would only consider the sales component in determining the amount of state income taxes paid by corporations. The state’s current tax system uses a formula that considers a corporation’s property, payroll, and sales in North Carolina.

This tax change would provide a tax cut to only certain corporations, with no guarantee of job creation or a boost in economic growth for the state and would reduce revenue available for public investments by $90 million for FY 2015. This revenue loss would be in addition to the massive annual revenue loss under the tax plan passed last year.

This push for even more tax cuts for corporations comes at a time of significant state funding cuts for: K-12 classroom teachers and teacher assistants; textbooks, resulting in schools using outdated textbooks or simply going without textbooks altogether; our public university system; environmental protection; economic development initiatives; and healthcare services, just to name a few areas. Examples of declining state support for public investments that provide the foundation of economic growth in North Carolina goes on and on.

State leaders rationalize its waning support by claiming that North Carolina can’t afford to invest in its future, yet they continue to push for more tax cuts that are not likely to promote economic growth. The BTC brief highlights that other states that have adopted a SSF apportionment formula have not seen the job creation and economic boom promised. There is no reason to believe that North Carolina will experience a different outcome.

Instead of providing more tax cuts to profitable corporations, a better approach is to close existing tax loopholes that give preferential treatment to certain business at the expense of others. This approach would support a vision of a fairer tax system and would make the Tar Heel state more business-friendly by creating a more level playing field for all businesses.

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