NC Budget and Tax Center

State leaders’ so-called tax reform can’t be trusted

State leaders continue to talk out of both sides of their mouths when it comes to their supposed tax reform efforts. In one breath, lawmakers scold the decision to temporarily increase the sales tax rate in the wake of the Great Recession, which caused revenue collections to plummet. In the very next breath, however, state leaders laud their desire to steadily increase the amount of sales taxes North Carolinians pay as a transformative, game-changing move.

How can they praise the very action they supposedly disavow?

This demonstrates why state leaders cannot be trusted regarding tax policy decisions they’ve pushed through in recent years and their stated plans going forward. Their rhetoric doesn’t align with their inconsistent actions.

State leaders have made it explicitly clear that they would like to make radical changes to North Carolina’s tax system. Their goal is to shift our tax system to rely more and more on sales taxes while working to eliminate the income tax. This tax swap does not bode well for most North Carolinians and jeopardizes the ability of our tax system to provide adequate resources to ensure that all communities can thrive.

Hardworking middle- and low-income North Carolinians are particularly harmed by this tax swap, as they pay a larger share of their income in sales taxes. So the more they are asked to pay in sales taxes, the less income they have to make ends meet. Income tax cuts largely benefit the wealthy and powerful corporations, so continuing to cut income taxes means giving more and more tax breaks to well-off households.

Since 2013, lawmakers have delivered nearly $15,000, on average, in tax cuts for millionaires, while hardworking middle-income North Carolinian have received just $6, on average, each year. Meanwhile, low-income North Carolinians who struggle the most to put food on the table and keep the lights on have received a $30 tax increase, on average.

The fact that this tax swap harms middle- and low-income families and individuals while greatly benefiting the wealthy and powerful has not stopped state leaders from ushering it in. In fact, it seems to embolden them to charge forward even faster.

The claim by state leaders that all North Carolinians have benefited from their tax swap efforts in recent years is more of their talking out of both sides of their mouths: Giving large tax cuts to the wealthy and powerful is a good thing. Raising taxes for lower income North Carolinians is good. And somehow all North Carolinians benefit. This flawed logic cannot be trusted.

NC Budget and Tax Center

Senate tax measure would increase costs, hurt N.C. communities

North Carolina Senators are pushing to make changes to the state constitution, and, in doing so, would sacrifice things we need to help ensure that communities across the state thrive. The proposal, Senate Bill 817, would change the state’s constitution to prevent the rate of the state income tax from ever going up. This would lock in and forever guarantee the large income tax cuts pushed through by state leaders since 2013 that have largely benefited the wealthy and powerful corporations.

The bill permanently caps the state’s personal income tax rate at 5.5 percent. With the personal income tax rate already set to fall to 5.499 percent on Jan. 1, 2017, the cap would cut off a vital source of revenue. This is just the next phase of state leaders’ efforts to drastically alter the state’s tax system – which means that North Carolina cannot make sure that communities from the mountains to the coast can thrive. It also means that middle- and low-income communities are pushed into further economic straits because they have to carry a heavier tax load than the powerful.

Here are reasons why this proposal is bad for North Carolina.

  • Would lead to increased sales and property taxes. Proposal will force lawmakers to rely on other revenue sources—like the sales tax and property tax—and raise those rates to offset the loss of the income tax as a revenue source. Or it will just further drive an increased reliance on fees or other ways of financing public services like privatization or borrowing.
  • Would risk our state’s respected AAA bond rating. States that have set in place these kinds of tax and budget restrictions often face higher borrowing costs as their bond ratings are downgraded. This is a bad business decision for our state. It would mean higher costs to borrowing for everything from ConnectNC projects to local governments’ school construction.
  • Would make North Carolina unable to ensure communities thrive. We are already losing more than $1.5 billion per year due to deep income tax cuts, which primarily benefit the wealthy. The cuts are reducing opportunity—as illustrated by long waiting lists for early childhood education programs and in-home services for older adults, too few textbooks and teacher assistants, overburdened courts, and the gutting of environmental protections. The revenue loss is preventing us from catching up after the recession, let alone keeping up with growing needs.
  • Wouldn’t give lawmakers power to do anything they can’t already do through the legislative process. Policymakers have already cut income taxes and held the current budget proposals to the formula of population plus inflation growth. Changing the state constitution in this way would limit the tools available for future lawmakers to make fiscally responsible and timely choices. It would make lawmakers less accountable to North Carolinians. If this proposal goes into effect, it’s not going away, no matter how future voters feel.
  • It would lock in the tax decisions that have primarily benefited the wealthy. Low, flat income tax rates deliver the greatest benefit to the wealthiest North Carolinians, and this proposal to make the income tax rate structure permanent locks in the tax decisions made in recent years that have benefited the powerful.

We elect our legislators to use their judgment to make North Carolina a stronger, more prosperous state – not to take away from future lawmakers the ability to use their judgment to meet needs as they arise. This proposal threatens our future.

Here’s a link to BTC’s fact sheet on Senate Bill 817.

Learn more about how Senate Bill 817 would put N.C.’s AAA-bond rating at risk.

Learn more about how Senate Bill 817 would lock in tax giveaways for the powerful. 

Find out more about how we need to #GetNCBackonTrack.

2016 Fiscal Year State Budget, NC Budget and Tax Center

More “clarity” adds to tax shift taking place in North Carolina

North Carolinians are paying more in sales taxes than they did a few years ago. Lower income North Carolinians continue to pay a larger share of their income in state and local taxes compared to the wealthy. This is a result of state leaders’ deliberate efforts to create a state tax system that relies much more on the sales tax and much less on income taxes. Consequently, the tax load has shifted to low- and middle-income taxpayers and away from the state’s highest income earners.

North Carolinians now pay sales tax on a number of activities and services that were not subject to sales tax prior to 2014. In recent years, the sales tax has been expanded to include more than 40 services that were either not taxed at all or only partially taxed prior to tax changes passed by lawmakers. And the list of services subject to sales tax will likely grow under tax changes pushed through by state leaders that give large income tax cuts to the wealthy and profitable corporations and swap in the sales tax, which disproportionately hits middle- and low-income taxpayers. And because state leaders have not put in place a strong Earned Income Tax Credit (EITC) to offset this swap, this means most North Carolinians will likely see even more of their income going to state and local sales taxes.

For the current fiscal year, North Carolinians will pay more than $500 million in additional revenue as a result of lawmakers expanding the sales tax base. For the upcoming fiscal that begins July 1st, nearly $640 million in additional revenue will be raised from expanding the sales tax. Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Senate’s higher education budgets continue disappointing status quo approach

Ensuring that North Carolina’s public colleges and universities remain top-notch national models of success doesn’t look to be a priority for Senate leaders. The Senate budgets for higher education – the UNC System and Community College System – fail to ensure that adequate resources are available to provide quality education services to the more than 400,000 students enrolled in public colleges and universities across the state.

Steady erosion of state support for higher education in recent years has played a direct role in the increasing cost of college in North Carolina, as colleges make up for those state funding cuts in part on the backs of college students and their families by increasing tuition and fees. Tuition at community has increased by 81 percent since 2009. At public four-year universities, state funding per student remains more than 15 percent below its 2008 pre-recession level when adjusted for inflation – equating to hundreds of millions of dollars in funding cuts. The Senate budget does nothing to make college access and completion an affordable reality for more North Carolinians.

Highlights from the Senate budgets for higher education: Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Senate’s public schools budget reflects diminished expectations and limited possibilities for NC

Public schools will continue to operate with constrained resources under the Senate’s proposed budget for the upcoming fiscal year. The budget leaves most needs across the K-12 education budget unaddressed, aside from providing additional funding for pay raises for teachers and school leaders and funding enrollment growth. The additional funding for teacher pay increases are made possible in part from cuts to General Fund appropriations for other core education investments that support children’s educational success. Furthermore, state leaders continue to rely more on lottery dollars, rather than General Fund appropriations, to fund core areas of the education budget.

As a result, state funding per student under this budget is 8 percent below 2008 pre-recession spending.* This education budget represents the diminished expectations and limited possibilities for North Carolina that are a result of state leaders’ preference for more and more tax cuts (included in the budget) and their misguided budget decisions based on an arbitrary spending target that fails to account for the actual needs of public schools. Read more