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NC Budget and Tax Center

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

NC Budget and Tax Center

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.

NC Budget and Tax Center

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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NC Budget and Tax Center

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

NC Budget and Tax Center

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