NC Budget and Tax Center, race

Low-income taxpayers in NC pay more of their income in state and local taxes each year than the richest taxpayers

A new study released today by the Institute on Taxation and Economic Policy (ITEP) finds that the North Carolina tax system is regarded as the 31st most regressive because low-income taxpayers are asked to pay more in state and local taxes as a share  of their income compared to the rich.

The study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, analyzes tax systems in all 50 states. The analysis evaluates all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes. According to their findings, the lowest-income North Carolinians pay 1.5 times more in taxes as a percent of their income compared to the state’s wealthiest residents. As illustrated below, the lowest 20% of North Carolina taxpayers pay 9.5% in total taxes as a percentage of their income, while the top 1% of North Carolina taxpayers pay 6.4% in total taxes as a percentage of their income.

Source: Institute on Taxation and Economic Policy

The wealthiest North Carolinians continue to benefit most from our growing economy and the state tax code is supercharging those gains. It’s not unreasonable to ask the highest-income residents and corporations to pay a share of state and local taxes that gets closer to the share that taxpayers with poverty-level incomes pay or that seeks to balance what is now an upside down tax code.  It makes certain that those who spend more of their income have more income to spend locally. It is also good for our fiscal position as a state.  It turns out, more progressive rate structures are better able to keep up with a growing economy and thus fund the services and infrastructure that support thriving communities.

Sales taxes play a critical role in the regressive and consequently inequitable nature of the North Carolina tax system. Like most other states, North Carolina relies on sales and excise taxes (30.7% of the 2018-2019 approved budget) as a primary mechanism to raise revenue. However, in North Carolina, sales and excise taxes are the most regressive taxes when compared to income and property taxes. The lowest 20% of North Carolina taxpayers 6.1 percent in sales taxes as a percentage of their income while the top 1 percent pays less than 1 percent in sales taxes as a percentage of their income.

Source: Institute on Taxation and Economic Policy

 Equally important are the racial implications of regressive state and local tax systems. Tax codes worsen the racial wealth divide when they tax low-income people at higher rates than the wealthy, tax income derived from wealth (e.g. capital gains) at a lower rate than income derived from work, and heavily rely on consumption taxes. A recent study on the Tax Cuts and Job Act from ITEP and Prosperity Now report regarding changes to the federal tax code report similar findings— communities are color benefit the least from tax systems that reward the wealthy, who are overwhelmingly White. Moreover, tax cuts in recent years in North Carolina have consolidated the racial wealth divide by delivering the greatest share of net tax cuts to White taxpayers.

State lawmakers have control over how their tax systems are structured. This latest Who Pays data makes clear that our state’s failed tax-cut experiment is maintaining a tax code that privileges the few at the expense of us all.

Martine Aurelien is a Policy Fellow at the Budget and Tax Center, a project of the North Carolina Justice Center. Her work focuses on equitable economic opportunities, tax policy, race equity, and systems level policy solutions. 

NC Budget and Tax Center

Trump tax cuts are the “power tools” of the nation’s racial wealth divide

The federal tax code is one of the most powerful tools that drives the economic outcomes that we seek. Unfortunately, instead of utilizing this “power tool” to help low and middle income earners build wealth, the newly enacted Tax Cut and Jobs Act (TCJA) exacerbates an already massive racial wealth divide by rewarding  existing white wealth over the economic security of households of color, a disparity that reflects longstanding racial economic inequality in the United States. A new report from Prosperity Now and the Institution on Taxation and Economic Policy (ITEP) details the racial implications of TCJA.

Here are the THREE key findings from that analysis:

On average TCJA tax cuts benefit White earners of nearly all income statuses: “Of the $275 billion in tax cuts the TCJA provides to individuals this year, $218 billion (80%) goes to White households. On average, white households will receive $2,020 in cuts, while Latino households will receive $970 and Black households receive $840.”

TCJA tax cuts provide pronounced benefits for top earners who are overwhelmingly White: “Middle class households receive $2.75/day in tax cuts while White households in the top 1% receive $143/day; While 1.2% of White families earn enough to place them among the top 1 percent of earners, just 0.4% of Latino and Black families are members of this group.”

Communities of color, especially Asian households, stand to benefit the least: “Asian households fall in the bottom 20% of income-earning households, who receive just $70 from the Tax Cuts and Jobs Act in a year, or less than $0.20 per day.”

In enacting the Tax Cuts and Jobs Act, Congress has chosen to use this economic power tool to further buttress wealthy White households. Without change, TCJA tax cuts stand to increase the racial wealth divide and make it nearly impossible for households of color to catch up to White wealth.

 

Martine is a State Priorities Policy Fellow at the Budget and Tax Center, a Project of the North Carolina Justice Center. Her work focuses on economic equity and systems level policy change. 

NC Budget and Tax Center

Gov. Cooper proposes bold plan for Hurricane Florence recovery

This week, Governor Cooper released a report detailing the damages the state sustained from Hurricane Florence as well as a plan and recommended budget for rebuilding efforts. The plan recommends a total state commitment of $1.5 billion.

“In September 2018, Hurricane Florence brought high winds, dangerous storm surge and record rainfall that caused historic flooding throughout North Carolina. At its peak, Hurricane Florence was a Category 4 storm as wide as the entire state with winds reaching 140 mph. The storm hovered over North Carolina for six days, inflicting even higher levels of rainfall, storm surge, and flooding than Hurricane Matthew only two years prior. This deadly storm has left a lasting impact on families and neighborhoods across our state, resulting in 40 confirmed fatalities. Property damage and power outages were widespread, cutting power to over a million people and forcing tens of thousands of families to take refuge in emergency shelters. While the impacts of Hurricane Florence were felt across the state, those who live in the southeast bore the brunt of the storm. Twenty-eight counties have been designated by FEMA for federal disaster assistance. An estimated 2.6 million people, or one in four North Carolinians, live in one of the designated counties. Preliminary impact estimates approach $13 billion in damages across the state. This is over two times the $4.8 billion physical and economic cost of Hurricane Matthew in 2016.”

Legislators will return to Raleigh in a Special Session Monday devoted to funding long-term recovery needs for Eastern North Carolina.

Check out the full report HERE

NC Budget and Tax Center

On taxes there is a different set of rules that helps the rich, but not the working class

Tax revenues support public investments and therefore are the cornerstones of effective public structures and prosperous communities. In order for our tax structure to work it must be fair across income levels and tax enforcement must be applied consistently. Unfortunately that is not the case as it is clear that when it comes to taxes the richest use a different set of rules while the working class continues to lose.

A new investigation by the New York Times has found that “President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents.”

Here are some of the key findings of this investigation:

  • “President Trump received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s”
  • “The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances. However, the Trumps paid a total of $52.2 million, or about 5 percent, tax records show.”
  • “In the late 1940s, Fred Trump obtained roughly $26 million in federal loans to build two of his largest developments. Records obtained by The Times reveal how he began to build or buy apartment buildings in Brooklyn and Queens and then gradually, without public trace, transfer ownership to his children through a web of partnerships and corporations.”

Findings like this must be called out and a statement by the Institute of Taxation and Economic Policy (ITEP) does exactly that by bluntly stating:

“The key takeaway from the New York Times article on Donald Trump’s family’s tax shenanigans is that the wealthy and powerful abide by a different set of rules than the rest of us. Not only does the tax system allow the wealthy to take advantage of legal loopholes, it also allows them to blur the line between legal avoidance and illegal tax evasion with little consequence.”

“Wealthy Americans should not be able to play by a different set of rules and avoid or evade their fair share of taxes. We need to reform the tax system to close the loopholes the wealthy use to avoid taxes and substantially increase funding to the IRS to ensure that the laws we do have are robustly enforced.”

Overall, these latest findings of how the richest are not paying their fair share and how the tax system consolidates their wealthy year after year are very concerning, especially considering that the federal tax law passed last year rigs the rules in favor of the rich even more. Indeed, President Trump pushed for a federal tax law last year that provides 50 percent of the benefits to the wealthiest 5 percent of Americans.

This law also provided a break that favors the wealthy as it doubled the amount of assets that can be left to heirs without triggering the estate tax from $11 million for a married couple to $22 million. Even prior to passage of the new law, only 0.2 percent of estates were taxed, which means reducing the estate tax only benefited the very wealthiest families even more. Furthermore, it is well established that recent tax code changes have provided major corporations with generous tax cuts.

As a country we must ensure everyone in America, regardless of their income level, has a good chance to succeed and thrive, because that is when our country is at its best. Having a different set of rules that simply helps the rich avoid accountability goes against that and sends the wrong message about what is right.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

Education, Higher Ed, NC Budget and Tax Center

North Carolina’s cuts to higher education are shortchanging future generations

North Carolina’s inadequate public investment in higher education over the last decade has contributed to rising tuition prices, often leaving students with little choice but to take on more debt or give up on their dreams of going to college. The problem is especially serious for Black, Latinx, and low-income students.

North Carolina is one of 45 states that spent less per student in the 2018 school year than in 2008 – even as the economy and state budgets have returned to pre-recession levels, according to Unkept Promises: State Cuts to Higher Education Threaten Access and Equity, a new report from the Center on Budget and Policy Priorities (CBPP).

2008 – 2018 Cuts to Higher Education Funding (adjusted for inflation):

  • North Carolina Average: 18.6 percent per student or $2,357 per student
  • S. Average: 16 percent per student or $1,502 per student

Cuts to higher education have helped drive up the cost of attending public colleges and universities. Between 2008 and 2018, the average tuition at public four-year institutions in North Carolina grew by 45% or $2,293– outpacing the national average growth of 36 percent.

Americans’ slow income growth has worsened the situation. While the average tuition bill increased by 36 percent between 2008 and 2018, median incomes grew by just over 2 percent. Nationally, the average tuition at a four-year public college accounted for 16.5 percent of median household income in 2017, up from 14 percent in 2008.

In North Carolina, the costs of a college education represents 14 percent of median household income for all North Carolina families, 19 percent of median household income for Black North Carolina families and 18 percent of median household income for Latinx North Carolina families. Read more