NC Budget and Tax Center

The top 1 percent earned almost 18 times more than everyone else in N.C. in 2013

While most North Carolinians have dealt with stagnant or declining real incomes, the top 1 percent saw their incomes increase substantially during the current recovery, according to a new report, Income inequality in the US by state, metropolitan area, and county, published by EPI.

The last decade in North Carolina has been the most unequal since the 1930s. On average, the top 1 percent earned almost 18 times more than everyone else in North Carolina in 2013. Report authors Mark Price and Estelle Sommeiller lay out the average incomes of the top 1 percent, the income required to be in the top 1 percent, and the gap between the top 1 percent and the bottom 99 percent in every county and state as well as in 916 metropolitan areas. The authors found that, the top 1 percent captured 85.1 percent of total income growth nationwide from 2009 to 2013, while here in North Carolina all of the new income during that period went to the top 1 percent.

Key findings for North Carolina include:

• The top 1 percent earned 17.7 times more than the bottom 99 percent in North Carolina in 2013.

• The average annual income of the top 1 percent in North Carolina was $745,686 in 2013. To be in the top 1 percent in North Carolina, one would have to earn at least $327,549.

• Inflation-adjusted incomes for the top 1 percent doubled between 1979 and 2009, while the rest of North Carolina only saw incomes increase by 10 percent.

Fact Sheet - Income Inequality-hi res-1

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 refuses to hear NC Treasurer’s concerns over proposed ballot initiative

NC Treasurer Janet Cowell is concerned that efforts to cap the state income tax. Imposing a rate ceiling could cost North Carolina losing its excellent bond rating, making it more expensive for the state to issue debt. The Treasurer outlined concerns over Senate Bill 817 in a letter to legislative leaders (posted below), but the Senate Finance Committee refused to give Ms. Cowell time during debate to describe why the bill will raise red flags for the companies that assess North Carolina’s credit-worthiness.

Treasurers Letter on Income Tax Cap-1

Treasurer’s Letter on Income Tax Cap (PDF)

It is revealing that the committee wouldn’t allow the elected representative who is responsible for safeguarding North Carolina’s finances to address the damage that could result from changing the state constitution. We’re talking about changing the state’s founding document, no small thing, so surely our elected leaders need to hear the facts before they make a call.

As can be seen in the Treasurer’s letter, capping the state income tax would tie the state’s hands, leaving us vulnerable to the next recession, bad storm, or other unforeseen event.

As my colleague noted earlier, the essence of democracy is for two sides to make their cases and see what happens. There’s still time for a real debate to happen, and we need one before a choice of this magnitude.

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.

2017 Fiscal Year State Budget, NC Budget and Tax Center

Read fine print: How the state Senate spends federal the dollars in its budget

When state lawmakers put together a budget proposal, they decide how to spend state dollars on the public investments that help children, families, and communities thrive. These are things like public education, public health and safety, and transportation services and programs. Lawmakers also allocate federal aid that is passed to the state in the form of block grants, with the details appearing in the budget bill as “Special Provisions.”

These federal dollars are an important tool for helping communities thrive but on their own are insufficient to make sure that state goals that benefit everyone are met. Critical state investments are needed to build a more inclusive economy. Yet in some instances, lawmakers shifted away from using federal aid to meet long-standing priorities such as affordable housing while failing to make sure that the state makes catalytic investment. In other cases such as early childhood education, the state recently began to swap out a portion of state funding for federal aid. Supplanting—rather than supplementing—state dollars is troubling when waiting lists and unmet needs persist.

Block grants have been around since the late 1960s and are a specific amount of funding to assist state governments in addressing broad policy goals and purposes—such as improving economic mobility and quality of live through social services, public health, and community economic development investments. The federal government sets general guidelines on how states can allocate the money while giving give states a great deal of flexibility in the use of the funds. In North Carolina, most of the block grant dollars are passed to the state’s 100 counties to administer the services and programs.

The Senate budget governs the use of federal block grants across the board but it is worth highlighting specific changes that signal a change in the reliance and allocation of federal funds. Read more