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There has been a lot of talk in the state, national and social media world about North Carolina’s reputation as of late, and it doesn’t sound so good. Governor McCrory has repeatedly stated that he was concerned about North Carolina’s brand and intended to rebrand the state to make it more business-friendly. Turns out, North Carolina is already competitive and further, the US Chamber of Commerce tells us “North Carolina is home to a collection of powerhouse research universities and a network of higher education. With innovative and high-tech enterprises spinning from places like the Research Triangle for more than 30 years, North Carolina ranks 12th overall for technology and entrepreneurship this year. The state has the 13th-highest concentration of STEM workers and ranks 4th for academic research and development intensity.”   Read More

Throughout the tax reform debate, we’ve been hearing a lot about the importance of improving North Carolina’s economic competitiveness as a route to bringing down the state’s exceptionally high unemployment rate. With the jobless rate stuck near 9 percent, unemployment is clearly a central policy challenge facing our state’s lawmakers. But lawmakers are getting it wrong when they assume that North Carolina’s unemployment is the result of poor economic competitiveness relative to other states. And it’s certainly no reason to support deep tax cuts like those embodied in all of the proposals put forward by the House and Senate.

The plain truth is that North Carolina is already competitive in attracting and growing businesses in the state.  In fact, the CEOs and consultants who make corporate location decisions have repeatedly ranked North Carolina near the top of the nation for its business climate and attractiveness to investment in survey after survey.  The U.S. Chamber’s own Enterprising States ranking puts North Carolina 12th for innovation and entrepreneurship.

The results are plain to see: North Carolina’s economy compares pretty favorably to our neighboring states (all of which have lower tax rates). Our state is leading or in the middle of the pack in nearly every major indicator of economic competitiveness—poverty, household income, and even annual per capita economic growth.

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The newest (5th version) of the Senate tax plan is said to be a modified version that addresses various concerns in early versions of the plan. Nevertheless, the bill maintains its core elements – huge tax cuts for the wealthy and profitable corporations and significant revenue loss – and returns to expanding the sales tax to more goods and services (though not as comprehensive as one of the earliest versions) in an effort to reduce the revenue loss slightly from the prior $1.3 billion to now nearly $1 billion.

The repeated claim made by Senator Berger and proponents that all taxpayers would see an income tax cut under the modified tax plan is simply not true. Cutting the personal income tax rate may appear to benefit all taxpayers but it doesn’t and the tax plan has many other moving parts that will shift the tax load to low- and middle-income taxpayers. For example, by eliminating the personal exemption allowance, the state EITC, and the additional standard deduction allowance for seniors, many taxpayers fare worse under the newest Senate plan compared to current tax laws.

Below are examples of particular taxpayer profiles in which the taxpayer would pay more in income taxes under the newest Senate plan. Read More

It didn’t take long for policymakers to return to a tax shift in order to pay for the massive tax cuts under their proposed reduction of the personal income tax and elimination of the corporate income tax.  The latest Senate plan that passed on the floor on Wednesday expands the sales tax base and eliminates or caps various sales tax exemptions.

Even then, there will still be nearly $1 billion annually lost to the state when the bill is fully implemented. In the meantime, on average, taxpayers with income less than $169,000 will see their tax load increase while the top 1 percent, on average, will see a tax cut of, again on average, $11,000.

Why is the Senate tax plan a tax shift? By significantly reducing the revenue collected through the personal income tax, the Senate tax plan ends up increasing the reliance on the sales tax to pay for our public schools, health services, courts and infrastructure.  Greater reliance on the sales tax means a greater impact on low- and middle-income taxpayers who spend more of their annual income on taxable goods and services than upper-income taxpayers. To help offset this increased impact, the expansion of the sales tax base should be paired with a strong Earned Income Tax Credit, which is not included in this tax plan. Read More

The latest Senate tax plan continues to provide large tax cuts to the wealthiest taxpayers and profitable corporations, while shifting more of the overall tax load to middle-class families and reducing revenue for schools, health care and other services by nearly $1 billion each year when fully implemented. Yesterday, Senator Berger released the Senate’s latest tax plan after a week of negotiations behind closed doors with the House. While Senators state that many of the criticisms of their earlier bill have been addressed, the loss of revenue remains high.

In order to bring down the overall cost of the bill – from $1.3 billion to just under $1 billion under the new tax plan – the Senate plan shifts the tax load to the bottom 80 percent of taxpayers, who on average will see their taxes increase. This tax shift is a result of the combined impact of expanding the sales tax base to more goods and services, the loss of the personal exemption and the cap on itemized deductions. By contrast, the top 1 percent will see their taxes cut on average by nearly $11,000, with 56 percent of the total net tax going to the richest taxpayers.

 Senate 5thed Chart

The Senate tax plan fails to address the state’s upside-down tax system and actually makes it worse by skewing it even more in favor of the wealthy and profitable corporations. The significant reduction in revenue means further cuts to public education, health care, and public safety in the years ahead. A tax plan that shifts the tax load to low- and middle-income families is not a plan that promotes economic opportunity for all North Carolinians.