NC Budget and Tax Center

Millionaire’s tax could raise revenue, spur growth, and advance race equity

Tax week represents a good time to reflect on how North Carolina’s current tax code places limitations on revenue building opportunities for much needed public investments. If North Carolina seeks to fulfill its commitments and ensure prosperity for all of its residents, then it must take advantage of sound policies — like placing high rates on higher incomes through a a millionaire’s tax — that can raise such revenue. Roughly $362 million could be raised from a millionaire’s tax in North Carolina.

Researchers have proposed higher tax rates on higher incomes based on the idea that $1 for a very wealthy person doesn’t make a significant impact on their well-being in the same way that it would for someone with a much lower income. Furthermore, given the high concentration of wealth that exists in the hands of a few — which is overwhelmingly white — placing a higher rate on the highest incomes suggests that it would (1) only impact a small number of taxpayers and (2) begin to address the growing racial wealth gap.

In North Carolina, a higher tax rate on income over $1 million would reduce the size of the average net tax cut for the top 1 percent by 0.5 percent, or $6,461. This would, in part, address the upside-down nature of the tax code while making it less likely that the tax load will continue to shift to low- and middle-income taxpayers as growing needs must be met. Future policymakers would not be inclined to just raise the flat rate on all income but could continue to build a graduated rate structure on higher income.

While our state seeks to provide each of us with a high quality of life, it’s already struggling to keep up with investments needed in the classroom, in the infrastructure that ensures our communities are resilient and connected to opportunity, and in the protections and supports that promote healthy living environments. A millionaire’s tax — and moving to a graduated income tax structure that sets higher rates on higher income — can help North Carolina raise revenue for its priorities, decrease racial inequities, build economic opportunity, spur growth, and address, in part, it’s upside down tax code.

NC Budget and Tax Center

Report: Ocasio-Cortez is right; a marginal tax rate on high incomes would be good policy for NC

In January, Representative Alexandria Ocasio-Cortez (D-NY) proposed the idea of raising marginal income tax rates — the tax imposed on each additional dollar of income after a pre-determined cut-off — on high incomes ($10 million+) as a means of raising revenue for key investments and addressing growing income inequality. Since then, a number of members of Congress have put forward ideas about how to tax higher incomes at higher rates.

According to a recent poll, the majority of Americans agree with Representative Ocasio-Cortez’s proposal.

State policymakers across the country have also put forward proposals to make higher incomes subject to higher tax rates.  The Center on Budget & Policy Priorities has catalogued these efforts here. As one example, in his 2019 budget, New Jersey Governor Phil Murphy proposed implementing a 10.75 percent rate on gross incomes over $1 million, in addition to other tax increases, to help raise revenue for New Jersey’s priorities.

Here in North Carolina, the General Assembly has the ability to place a higher rate — up to 7 percent — on incomes over $1 million and provide the dollars needed to meet community priorities.

Earlier today, we released an analysis of what this would mean for North Carolina. A graduated tax structure that taxes higher incomes at higher rates — particularly one that places a top marginal rate of 7 percent on income over $1 million — could raise roughly $362 million in revenue for priorities in communities across our state and address, in part, the state’s upside-down tax code.

If North Carolina seeks to fulfill its commitments and ensure prosperity for all of its residents, then it must take advantage of sound policies that create opportunities to raise revenue. As research shows, such policies have been enacted elsewhere without negative effects on the economy.

Marginal income tax rates on high incomes can help North Carolinians afford investments that decrease racial inequities, build economic opportunity, and spur growth, such as high-quality education, improved support for low-income families, and better roads and other infrastructure improvements.

Commentary, Education

Report: Low wages vexing early childhood education in North Carolina

Earlier this week, the N.C. Justice Center’s Budget & Tax Center released a report analyzing the role that public investments in North Carolina’s early childhood workforce could play in supporting our state’s goals of delivering high-quality learning experiences to our youngest children.

The report highlights the realities low-wage work presents for early childhood educators and students, and promotes a two-generation approach to address these grim realities.

According to the report, North Carolina’s childcare system faces two major barriers:

(1) Parents simply cannot afford to pay rising child care costs with stagnant and low wages.

(2) Early childhood educators can’t make ends meet and deliver a quality learning environment for each child on their low wages.

North Carolina has made commitments towards providing high quality early childhood programs. However, the state continues to fall short in ensuring early childhood educators can provide for themselves and their families while also providing high-quality care to the state’s children.

If the benefits of North Carolina’s early childhood system are to be fully realized, these educators’ wages must match the importance and long-term impacts of their work. Only then can they cover the costs of their every-day needs, including child care, and put their energy and time toward the education of their students.

One place to begin investing in early childhood students and their educators is existing compensation and professional development programs such as the Infant Toddler Educator AWARD$ program, the Child Care WAGE$ program, and the Teacher Education and Compensation Helps (T.E.A.C.H.) program. If brought to scale statewide, these tools can be designed to ensure early childhood educators’ compensation aligns with their credentials and with that of others in the education profession.

North Carolina has a robust infrastructure in place to support the early childhood workforce and strengthen the quality of early childhood programs. A focus on adequately and equitably funding that infrastructure will ensure that each child is able to thrive and that the workers — often parents themselves — can as well.

Martine Aurelien is a policy fellow at the N.C. Justice Center’s Budget & Tax Center.

NC Budget and Tax Center

State ‘millionaires’ taxes’ can fund key investments without harming state economies

State income tax increases on high-income residents can raise substantial revenues for investments in people and communities and are more likely to boost long-term productivity than harm short-term economic growth, according to a new report from the Center on Budget and Policy Priorities (CBPP).

The facts about state millionaires’ taxes

  • States have increased their top income tax rates without harming their economies.
  • Over the last 18 years, 15 of the 20 major studies examining states’ income taxes found little to no effect on their economic growth.
  • Millionaire tax flight is uncommon and, therefore, does not weaken state economies. Less than three percent of millionaire households moved to new states in a given year.
  • High-income tax increases can help North Carolinians afford investments that decrease racial inequities, build economic opportunity, and spur growth, such as high-quality education, improved support for low-income families, and better roads and other infrastructure.

Millionaires in North Carolina have been benefiting from tax cuts since 2013. Before then, there was a graduated rate structure on personal income that taxed higher incomes at higher rates. In the first round of tax cuts in 2013, that was reduced to a flat tax rate of 5.75 percent. Since then, the tax rate has continued to be reduced and as of January 1, 2019, it stands at 5.25 percent.  Since 2013, 75 percent of the net tax cuts have flowed to the top 1 percent of income earners in North Carolina; the average annual income for those taxpayers during that time was nearly $1 million.

As of November 2018, there is now a cap of seven percent on income tax rates in the state constitution. Millionaires are the primary beneficiaries as they receive more than 50 percent of the total net tax cut from the inability to raise rates to prior levels on higher income.  A millionaires’ tax in North Carolina at the capped seven percent rate could raise revenue for meaningful investments that ensure our children are ready to learn and reading by 3rd grade, connect people to health care, and allow our workers to upgrade their skills for emerging industries.

NC Budget and Tax Center

State and local tax policies can advance or block racial equity. How is N.C. doing?

In a major report released today by the Center on Budget & Policy Priorities, researchers present a review of tax policy choices that have historically blocked opportunities for people of color and the ongoing challenge of assuming that tax policy is “race-neutral.”

The findings are particularly important for North Carolina.  Our state gets a mention in the report for recent tax cuts that have fueled the racial divide in our state.  Beyond that, North Carolina has failed to heed the lessons of our history—designing tax policy with the wealthy and white in mind rather than with the possibilities of connecting more people to the wealth-building potential of a good education, affordable home, reliable and quality health care, and thriving communities.

Indeed, of the three major recommendations from the report below, North Carolina has almost completely failed.

  • Strengthen State Tax Structure: Ensure that households with high incomes pay a larger share of their income in state and local taxes than households with lower incomes — the opposite of the upside-down tax systems in place in 9 of every 10 states today. Most states’ tax structures actually worsen racial and ethnic inequities because the tax structures are regressive and households of color are more likely to have lower incomes and less wealth than white households.
  • Raise Revenue to Invest in Overcoming Inequities: Raise sufficient revenue for high-quality schools in all communities and for other investments in education, infrastructure, health, and the like, and target spending to help overcome racial and ethnic inequities and build an economy whose benefits are more widely shared.
  • Improve the “rules of the game”: Improve the fiscal policy “rules of the game” so lawmakers don’t face artificial constraints that prevent them from raising more revenue from wealthier residents or to finance public investments that can promote broadly shared prosperity.

Notably, the recent passage of a state constitutional amendment in N.C. that caps the income tax rate at 7 percent places an arbitrary barrier that prevents progress toward advancing racial equity and the potential to boost North Carolina’s economy.

However, North Carolina policymakers still have many tools that they can and should pursue to advance the shared goal of expanding economic opportunity and an enhancing equity; this includes aligning the state tax code with ability to pay; adequately and equitably funding core services such as schools and health to connect Black, brown and white households to opportunity; and removing artificial constraints on tax and spending decisions such as the recent practice by legislative leaders of arbitrarily constraining spending and leaving needs unmet.

You can read the full report here.