NC Budget and Tax Center

Who pays taxes in North Carolina?

This tax season marks the final year North Carolina taxpayers will file their income taxes under the state’s old tax code. By next year the increased tax load for many North Carolina taxpayers will be apparent as a result of the tax plan passed by state leaders last year.

Today, the Budget & Tax Center released a report that highlights how the tax plan passed last year shifts the responsibility of paying for public investments to middle- and low- income taxpayers while providing generous tax cuts to the wealthy and profitable corporations. The report highlights various elements of the tax plan that fundamentally changes the state’s tax system and, subsequently, who pays taxes in North Carolina.

The tax plan passed last year replaces the existing graduated personal income tax rate structure with a flat tax rate that will largely benefit wealthy taxpayers who will now pay a much lower income tax rate. A number of tax provisions that benefit middle- and low-income families – such as the personal exemption and child and dependent care credit – are eliminated under the tax plan.

Other changes under the tax plan that contribute to the tax shift include huge corporate income tax rate cuts that will benefit only a small share of the state’s businesses. A portion of the corporate tax cut benefits with actually flow to corporate shareholders outside of the state. Meanwhile, expanding the sales tax to include various services means that those who spend a greater share of their income on goods and services – particularly middle- and low-income families and individuals – will pay more in state and local taxes.

Furthermore, the tax plan allows the state Earned Income Tax Credit (EITC) to expire, which results in a tax increase for more than 900,000 North Carolina families across the state’s 100 counties, who will claim the tax credit for the last time this tax season. This tax credit is a proven tool for offsetting the negative impact of sales taxes on low-income workers.

Overall, around two-thirds of net benefits from the full tax plan will flow to the top 1 percent of income earners in North Carolina, the report highlights.

Proponents of the tax plan claim that the tax changes will create jobs and boost the state’s economy. However, evidence shows no clear relationship between tax cuts and positive state-level economic performance. The recent experience in Kansas serves as a good example. After passing huge tax cuts in 2012 that shifted the tax load to the state’s middle- and low-income taxpayers, Kansas’ subsequent economic performance has been lackluster.

The tax shift resulting from the tax plan does not represent a fair tax system that promotes shared economic prosperity for all North Carolinians. Instead, it will undermine the state’s economy and the tax system’s ability to fund essential public services. And for that, we all lose under the tax plan.

7 Comments

  1. LayintheSmakDown

    April 14, 2014 at 6:12 pm

    Uh, the answer is pretty much everyone who makes income or makes an economic transaction. No need for a long winded post to state the obvious.

  2. Alan

    April 14, 2014 at 6:45 pm

    Does “everyone” include those corporations who manage to avoid paying their fair share of taxes? They are “people” after all…

  3. Michelle

    April 15, 2014 at 8:04 am

    This is so sad! I don’t understand how the economy will improve when the article says that those that spend most of their income on goods and services will be the ones that must bear most of the tax burden! They will now spend less money on goods and services and more money on taxes! How will this help boost economy and create jobs?!?!?!? The old saying is still true…”The rich get RICHER and the poor get POORER!” And nobody seems to care.

  4. Doug

    April 15, 2014 at 8:23 am

    >Alan: Corporations never pay taxes. They simply pass the cost along, usually to customers, but if the market won’t allow that, they reduce employee costs. Rarely they pass along to their owners/stockholders. Because corporate taxes burden consumers and/or workers, they’re regressive, not progressive.

  5. Jim Wiseman

    April 15, 2014 at 8:30 am

    Corporations don’t pay taxes. Their customers do.

  6. Jack

    April 15, 2014 at 2:29 pm

    As long as people elect those who make the tax laws that burden everyone but the rich the saying will be true. Fact is that the GOP said that we need smaller government to live better yet the GOP continues to grow big government to oppress all but the rich. As the Supreme Court ruled – Money is free speech – and the rich have a lot of free speech to convince people to vote against their best interest, therefore, the rich get richer and everyone else get poorer. People care but there is little that can be done right now to fight a state government that dictates from the Guv’s mansion, House and Senate of the General Assembly by passing laws that suppress the people. Remember the GOP is the party that believes that there is more freedom in North Korea than in the U.S. Is this the standard by which we are to judge the quality of our politicians?
    Such a statement can be passed off as hyperbole but still what is the intent of such a ignorant statement? Does such a statement get votes? If so then it is clear why people vote against their best interest.

  7. LayintheSmakDown

    April 15, 2014 at 5:41 pm

    Alan, as Doug said, you pay the corporation’s taxes for them. But yes, they do pay taxes and the NCDOR is very very very aggressive in making them do so.