NC Budget and Tax Center

Looking beyond the surface regarding news that revenue is up in NC

Revenue is up in North Carolina—which is no surprise because the national and state economies are growing. But before jumping to the conclusion that tax cuts are the reason why, take a look at the numbers. Revenue collections for the first half of this 2016 fiscal year are higher than the same period last fiscal year, a report from the state’s controller’s office highlights. However, when compared to the same period for FY 2013, receipts from the personal income tax are down and receipts from the sales tax, which now applies to more goods and services, are up (see table below). This is the tax shift that state lawmakers put into motion in recent years.

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This tax shift – less reliance on revenue from the income tax and more from the sales tax – is an expressed desire of state leaders. Beginning in 2013, state leaders ushered through huge income tax cuts while expanding the sales tax to include more services. These tax changes have largely benefited the well-off and profitable corporations while shifting the tax load to low- and middle-income families and individuals. The regressive sales tax hits low-income families and individuals particularly hard, as they spend a larger share of their income on goods and services subject to the sales tax. Thus, to point to increased revenue as evidence that low- and middle-income North Carolinians are better off is an inaccurate assessment of reality.

Over time, the failure to maintain a strong income tax will reduce the ability of the state to bring in the revenue needed for a growing population since the income tax is most effective at keeping up with the economy in the long-term.

The costly tax cuts passed by state lawmakers since 2013 greatly reduced the amount of revenue that otherwise would have been raised under the old tax code. Those dollars could have bolstered investments in public schools, affordable higher education, healthcare services for the elderly, and other public services. To compete for good-paying jobs and remain an attractive state to live, adequate investments in public services that build the foundation to drive the state forward is important. State leaders’ persistent pursuit for more and more income tax cuts hinders our ability to invest in our people and thus our future. Last year, state lawmakers passed another round of tax cuts that will reduce annual revenue by an additional $1 billion once they are fully implemented.

The challenges North Carolina face today pose long-term consequences. There are still too few jobs for those who want to work. Wages are stagnant and declining and the economic recovery is bypassing many areas across the state. Building an economy that works for everyone in part requires a tax system that works for everyone and that reflects what our state needs rather than one that favors the well-off and profitable corporations.

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