Senate leaders announced last week that they will file a “Billion Dollar Middle Class Tax Cut Act,” which is misnamed. It will actually continue to deliver the greatest tax breaks to wealthy taxpayers and profitable corporations and drive North Carolina ever closer to a zero income tax. The result will likely be a combination of underfunding needed public services in communities across the state and shifting the tax load to low- and middle-income taxpayers through increased sales and property taxes down the line. Here are four huge problems with the proposal:
1. Another $1 billion less in revenue makes it impossible to budget responsibly
The Senate proposes another $1 billion in tax cuts that will be paid for in cuts to public services. Importantly, the legislature’s Fiscal Research Division has already identified $680 million in immediate budget pressures—growing student enrollment in public schools and universities, health care costs, etc—for the next fiscal year. This does not include the well-documented need for the state to support rebuilding efforts in eastern North Carolina in the aftermath of Hurricane Matthew, nor the stated bipartisan priorities to invest in various unmet needs in the courts, mental health and other public service areas.
2. Eighty percent of the net tax cut since 2013 will have gone to the top 20 percent of taxpayers.
The cumulative change in taxes for North Carolina taxpayers will mean that the majority of the net tax cut since 2013, a full 80 percent, goes to the top 20 percent of taxpayers. If this proposal moves forward, a millionaire in North Carolina will have received an average annual tax cut of $20,000, while only a third of taxpayers who earn less than $20,000 would get anything. Taking all tax changes since 2013 into account, people who earn less than $20,000 would receive an average tax cut of $15 under this proposal.
3. Two-thirds of taxpayers in the bottom 20 percent of taxpayers receive no tax cut.
Senate leaders released misleading figures that seem to imply that some of the state’s counties with the highest poverty rates would see the largest tax cuts, but that’s simply not true. The major tax policies proposed in the Senate plan do not target low-income households or communities. These policies seek to exempt more income from taxation, lower the rate on income that is taxed, and uncap itemized deductions claimed by a very few and wealthy taxpayers. Most importantly, these income tax policies do not address the reality that many low-income taxpayers contribute through sales tax and do not have sufficient income to benefit from increasing the standard deduction or a Child Tax Credit that is not refundable. Fully two-thirds of the taxpayers with income below $20,000 a year will receive no tax cut from the Senate’s proposal.
4. Rural communities will continue to be hurt by the Senate tax cut proposal.
Not only will rural communities continue to be among the hardest hit from the loss of state revenue (many infrastructure, economic development and educational investments made by the state are not possible under current austerity policymaking), most rural North Carolinians would see little to no change in their tax payments. Tax returns reporting adjusted gross income over $100,000 and who are likely therefore to be among those receiving the vast majority of the benefits from the tax changes since 2013 are more concentrated in urban areas according to Internal Revenue Service data. Nearly half of taxpayers in rural counties have income that is too low to see any benefit from the Senate tax plan.
Check back here later for our full analysis of the Senate tax proposal.