NC Budget and Tax Center

North Carolina’s unfair tax system highlighted in new report

The latest Who Pays? report released today by the Institute on Taxation and Economic Policy (ITEP) takes a look at the fairness of state tax systems. For North Carolina, the lowest income North Carolinians pay over 70 percent more in state and local taxes as a share of their income compared to the state’s wealthiest residents, the ITEP report highlights.

The lowest 20 percent of North Carolinians – with an average income of $10,700 – pay 9.2 percent of their income in state and local taxes, the study finds, compared to 5.3 percent for the top 1 percent, the average income for this group is $969,100.

North Carolina’s unfair tax system presents both short- and long-term challenges and concerns. The state’s unfair tax system not only contributes to widening income inequality in the short term, but also leaves the state struggling to raise adequate revenue for public investments in the long term, ITEP notes. These realities are already playing out in the North Carolina. As state lawmakers return to Raleigh this week for the 2015 legislative session they face an ongoing revenue shortfall as a result of tax cuts passed in 2013.

North Carolina has moved away from many features that create a fairer tax system. State lawmakers replaced a graduated personal income tax rate structure (meaning the higher one’s income, the higher one’s effective personal income tax rate) with a flat rate that doesn’t take into account a taxpayer’s ability to pay, allowed the state’s Earned Income Tax Credit to expire, expanded the sales tax base, and allowed the corporate income tax rate to be cut from 6.9 to 5 percent and potentially as low as 3 percent.

These changes have resulted in a sizable reduction in revenue, with the state now challenged with funding basic public obligations such as education and healthcare services for the elderly and poor. Returning to a graduated income tax rate structure, reestablishing a state Earned Income Tax Credit, creating a renter’s credit or an enhanced and refundable Child Tax Credit, and stopping further tax cuts that largely benefit the wealthy and profitable corporations are important opportunities to create a fairer state tax code.

A state tax code that works for all North Carolina taxpayers is important for ensuring that economic opportunity and prosperity is broadly shared. The Who Pays? report highlights that there is work to be done to make this a reality.


  1. Alex

    January 14, 2015 at 5:23 pm

    I put $10,700 in my tax calculator and with standard deductions showed no NC state tax amount due at all. Am I missing something here ?

  2. LayintheSmakDown

    January 14, 2015 at 7:17 pm

    Yes, you are missing the talking point….reality does not matter to a progressive, only the talking point.

  3. LayintheSmakDown

    January 14, 2015 at 7:18 pm

    And you have to be sure to get the definition of “fairness”, which is not the dictionary definition.

  4. ML

    January 14, 2015 at 8:10 pm

    If someone is willing to live off of $10,700 a year then I don’t think they should be paying taxes. I’d say the point of the article is to highlight the shift of the tax burden as a result of the tax cuts. Either way I’ll bite. Who is more deserving of a tax break, a family of five with both parents working two jobs each making 60k a year or a family of five with one parents working one job collecting 600k a year with half from salary and half from passive income? Forget about those that make less than a thousand dollars a month.

  5. LayintheSmakDown

    January 17, 2015 at 9:43 pm

    I don’t see your point ML, why would one be more deserving than the other? Both got tax breaks so there is no issue.

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