A tax plan state Senate leaders presented this week would promote neither shared economic opportunity nor prosperity across North Carolina. Far from it.
The proposal would cost more than $1 billion in annual revenue loss as the tax plan continues down the path of handing out more costly tax cuts to large, profitable corporations at the expense of everyday North Carolinians. This approach won’t restore the state’s economy to a sound footing.
The proposed tax plan does nothing about persistent stagnant wages, an uneven economic recovery in which all gains are going to the wealthiest North Carolinians, and the lack of economic and job growth in many parts of the state. Senate leaders would pay for only a portion of the income tax cuts by having North Carolinians pay more in sales taxes, which hit people making relatively low incomes the hardest. And the state would continue to walk away from its responsibility to make much-needed investments in our public schools, public colleges and universities, repair the state’s eroding infrastructure, and other building blocks of a strong economy.
Key aspects of the Senate tax plan stand out as strong reasons why its adoption would fail to promote broad prosperity.
- The proposal’s reduction of the personal income tax rate to 5.5 percent from 5.75 percent has no benefits to the state’s economy or its competitiveness. At the cost of much-needed public revenue, the tax rate cut won’t drive significant job creation, motivate businesses or people to locate in North Carolina or encourage local investment. Not only do income tax rates affect these factors negligibly, if at all, North Carolina’s personal income tax rate is already in line with the region’s, falling in the middle among southeast states.
- While putting a limit on how much in itemized deductions a taxpayer can claim is good policy, using the added revenue this produces to reduce tax rates isn’t. Because this proposal would place all itemized deductions—mortgage interest, charitable contributions, medical expenses, etc.—under the cap, it creates greater equity in the treatment of taxpayers. Capping itemized deductions reduces revenue loss from these deductions and helps address inequities in the tax code, as wealthier taxpayers typically benefit more from deductions.
- Increasing the standard deduction is a wasteful way to address the problem of too many North Carolinians struggling to make ends meet because it deprives the state of much-needed public resources that could boost public investments that promote economic growth. A better way to help hard-working taxpayers keep more of what they earn is to adopt a strong refundable state EITC to help offset not only income taxes, but sales and property taxes that fall hardest on those with lower incomes.