As my colleagues have detailed over the past few weeks, President Trump’s budget blueprint proposes significant cuts to major programs and funding that support economic opportunity, health and well-being of North Carolinians. These cuts will allow the President to pursue increases in defense spending.
They are also required if the President and Speaker Ryan are to pursue the kind of overhaul of the federal tax code that would reduce revenue significantly over time. As has also been noted, much of the discussion of the federal tax changes has also been tied to the repeal of the Affordable Care Act where savings from reducing health care coverage are hoped to allow for the depth of tax cuts desired.
While we wait for the details on federal tax changes from President Trump and Congress, it is useful to review past proposals. These proposals have included reducing the corporate income tax rate and eliminating the alternative minimum tax for corporations, reductions in personal income tax rates and transfer tax as well as elimination or capping of itemized deductions and increases in the standard deduction among many other changes.
- The tax plan Trump put forward during his campaign would increase the federal debt by $20.9 trillion by 2036.
- The “Better Way” tax plan proposed by Speaker Paul Ryan would reduce the effective tax rates for the most well-off Americans by 8 percent, a change that is four times bigger than the change in effective tax rates for any other income group.
- Both tax plans represent a significant tax cut for the top 1 percent of taxpayers.
- The Border Adjustment Tax proposal for how the US would tax corporate profits would be regressive, fail to end offshore tax avoidance and violate trade agreements.
Because North Carolina’s tax code is tied to the federal code in various ways, the changes at the federal level will have an impact on states’ revenue collection and who pays. It is difficult to say exactly what the end result for North Carolina would be not least because the state has changed so much of its tax code in recent years. However, as ITEP writes, from eliminating the estate tax to treatment of capital gains and interest to “ending the deductibility of state and local taxes, creating a new deduction for child care expenses, changing the taxation of carried interest, altering expensing of business investments, and other corporate tax changes such as “border adjustment” could all have ripple effects on state revenue systems.”
Most notable in the overall assessment of the current federal tax code proposals is that it will become less progressive. And that means many North Carolina taxpayers will face an even heavier tax load given the already regressive nature of the state’s tax code today.