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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.

During yesterday’s Finance Committee debate over the latest iteration of the Senate’s billion-dollar tax cut plan, the bill’s sponsors repeatedly referenced the need to improve North Carolina’s economic competitiveness as the chief reason to cut income taxes.  While generating new job creation and economic growth is clearly a top priority for North Carolina, deep tax cuts to corporate and personal income tax rates are just not an effective way to accomplish these goals.

Much of the “evidence” tax cut proponents have cited in support of their proposals have been thoroughly debunked—both by the research of academic economists and the actual experience of states that pursued these policies. For example, out-of-state groups like the Tax Foundation have misleadingly claimed that “23 of 26” academic studies have shown that taxes hurt economic growth, but it turns out that these studies were either misquoted, cherry-picked, or failed to address the issue of tax policy at the state level.

Instead, a full look at the evidence reveals that tax cuts just don’t deliver. A panel of highly-respected economists from the state’s leading universities came before the Senate Finance committee last month and gave their much more rigorous and informed  response—one also at odds with the Tax Foundation study and the views of Senate leadership. In their experience, these economists said, there was no economic consensus that cutting taxes would lead to improved economic growth.  And they also noted that it would be important to consider the negative effects of reducing state spending if that was the way tax cuts were “paid for.”

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Waiting lists have grown for services for seniors and young children. Classrooms are getting more crowded. Court rooms are backlogged. That’s the reality in North Carolina since we don’t have nearly enough resources to meet our basic needs. And things could get much worse if lawmakers push through tax breaks that would mostly benefit the wealthy and limit state spending in a way that ignores how North Carolina is changing.

In a series of blog posts last week, my colleague Tazra Mitchell  pointed out how  our current tax system is failing to meet the changing needs of North Carolinians and our economy.  The problem will get  even worse  if the tax plans the Legislature is considering  go into effect, since they would  significantly reduce already inadequate resources for schools, health care and other things we rely on in our homes, businesses and communities every day.

The state is at historic lows in spending  as a share of  personal income (the best way to compare spending over time).  When funding for education, public safety and other vital services  can’t keep up with a changing and growing economy, tax systems fall short of their main  purpose. A sound  tax system must grow to be able to meet our needs  over time.  Slashing taxes and holding spending  to an arbitrary rate would be a giant step backward.   Read More

According to documents made available to the media, we have details of one of what could be multiple tax proposals that the Governor’s office is putting into the mix as the House and Senate leadership negotiate a final tax plan.   

While the Governor has clearly continued to prioritize revenue neutrality – an important pursuit in these times – and gets much closer than any of the other plans, his proposal “Alternative 3A” still falls short. Overall, the governor’s tax plan would reduce annual revenue available for public investments by around $215 million upon full implementation, which is less than annual revenue lost from the House ($500 million annually) and Senate ($1.3 billion annual) plans. Read More

With the tax negotiations well underway and an apparent offer from the House on the table, the debate over whether to adopt a bad tax plan or a worse tax plan will continue this week.  Both plans not only fail to fix the problems with our tax code but they would make the tax code even more favorable to wealthy taxpayers and profitable corporations at the expense of middle-class and low-income taxpayers. Both would also result in significant revenue losses that would put at risk public services that North Carolinians value and that matter to our economic stability and long-term growth.False Choices in Tax Plans _FINAL

The latest developments in the negotiations only serve to confirm these concerns.  It appears that the House is moving closer to the Senate on some of the provisions which means the revenue loss for the House plan will grow to $769 million.  Rather than look to find responsible ways to balance those changes or reject the income tax reductions, it appears that policymakers are just looking to slap something together in the waning days of the session.  This is certainly not the way to remake the tax code for the next century.