NC Budget and Tax Center

Taxes Matter

The last weekend before Tax Day is here and in the last minute rush to get your returns in, it can be helpful to reflect on why taxes matter.  Taxes are as some have said “the price we pay for civilized society” and more simply the way in which we invest together in building a stronger state through the creation of opportunity and establishment of a basic quality of life for all North Carolinians.

In the aftermath of the disastrous tax plan that passed last year, just how taxes play a role in our everyday lives has become clearer.  Taxes make it possible for our children to have a quality classroom experience, taxes fund monitoring and inspection that protect the quality of our water, taxes build the infrastructure that connect workers to jobs and support business in job creation.  And yet, the tax plan has created a self-imposed budget crisis that will undermine our ability to invest in these foundations of a strong economy.

Beyond that fundamental role of funding core public services, who pays under the tax code matters too.  And the tax plan passed last year makes an already upside down even worse: low- and middle-income taxpayers pay more as a share of their income than wealthy taxpayers.  This not only hurts families who are trying to make ends meet on falling or stagnating wages, it compromises the long term ability of the tax system to fund public services since it taxes where the income growth is not occurring, which creates a gap as needs increases but revenue can’t keep up.

Making sure our tax system works efficiently and can fund core public services is crucial.  Making sure it doesn’t ask more of certain taxpayers over others is also fundamental.  A true reform effort must flow from these rock-solid principles:

  • A tax system must generate enough revenue to pay for services needed to promote economic growth, public safety and many other important functions, both in the short- and long-term.
  • Equity needs to be built in. That means, for example, that lower income households don’t pay a higher share of their income in taxes than do high income households; and that people in similar economic situations pay roughly similar taxes.
  • A tax system needs to be constructed in ways that avoid, to the extent possible, unpredictable, large fluctuations in the amount of revenue collected in a given year.
  • The amount of revenue collected should keep pace with growth in the economy, in order to maintain investments in education, transportation and many other services and respond to changing needs.

Ironically, now more than ever, North Carolina needs to fix the newly created problems with our tax system. The changes made last year in don’t address the real problems with the state’s revenue system. For North Carolina to remain a leader among states, we must redouble our efforts to support an innovative economy that strives to expand opportunity for all. A tax system that is based on sound principles is critical to that effort.

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