The tax decisions in the Senate and House budget this year — as with each year — determine what the state is able to invest in. For years, North Carolina legislative leaders have prioritized tax cuts for the few over investments in all of our well-being.
Our tax code can and should support smart public investments that would otherwise not be provided or accessible to all in our state. Our tax code also shouldn’t ask more as a share of income from those with the lowest income while giving breaks to the few and special interests if there aren’t demonstrated broad-based benefits to our state.
The House and Senate budget agree on many of the major tax provisions in the two budget proposals.
The Senate budget, however, makes even deeper cuts to the franchise tax in pursuit of its goal eliminate the franchise tax in the near future. The Senate proposal would also increase the standard deduction threshold higher than the House proposal, which would mean a greater revenue loss and only a modest difference in the experience of taxpayers. Both proposals include extensions of tax breaks for the aviation and motor sports industry, a tax break for those receiving economic development incentives. Both also include a shift to the ways in which sales are apportioned across states to determine sales taxes owed and the extension of a gross premium tax to prepaid health plans in light of the transition to Medicaid managed care. Both proposals comply with the by expanding online sales tax collections, but with different revenue estimates.
The Senate budget results in even greater revenue losses for the state that will undermine the ability to meet community priorities.
The reduction of the franchise tax rate results in an annual loss of $288 million in revenue each year when fully in effect. These dollars are equivalent to what it would take to get classroom supplies, technology and textbooks back to pre-Recession levels.
When looking across all the changes in the Senate tax proposal, the reality is that once again the group receiving the greatest share of the net tax cut is the top 1 percent. Notably, those with income below $25,000 will see their taxes increase slightly. This is because the Senate proposes using the online sales tax collection to roughly pay for the increase in the standard deduction, but the standard deduction only applies to taxable income and doesn’t account for the greater share of income paid in sales tax by low-income taxpayers.
Tax cuts since 2013 have delivered the greatest tax change on average to the top 1 percent, whose incomes are $1 million or more.
And while all income groups, according to a final economic incidence analysis provided by the Institute on Taxation and Economic Policy, received an average reduction in their total taxes paid, many individual taxpayers — most notably working families with low incomes — saw their taxes go up as a result of the loss of key tax credits for working families.
Taking into account all the major tax changes from 2013 through 2019, the top 1 percent has received 48 percent of the net tax cut delivered by the state. The loss to state revenue each year from these already enacted tax changes is $3.6 billion.
Neither the Senate nor the House tax plan will fix our upside-down tax code.
North Carolinians know that the tax code is upside-down. They know that the very wealthy are getting the lion’s share of tax cuts being handed out year after year by legislative leaders. In the long-term, it is this upside-down feature that will also continue to make it difficult for our tax dollars to meet the needs of a growing state.