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The tax plan that North Carolina’s Senate leaders unveiled yesterday should not be mistaken for tax reform. It is, in reality, a plan to gut North Carolina’s schools, public colleges and universities, infrastructure, and other key state investments that promote long-run prosperity.

The plan’s massive tax cuts, which would mainly benefit large corporations and the wealthy, would cost the state $1.3 billion each year once fully in place, roughly the entire annual budget for North Carolina’s community colleges. Blowing such a massive hole in the budget would jeopardize the quality public schools, nationally-recognized public university system, and other assets that have attracted businesses — and jobs — to the state in industries like financial services and scientific research.

Other states that considered similar proposals this year backed off in part because of the reality that huge tax cuts for the wealthy must be paid for with untenable reductions in funding for schools and other state services, tax hikes on others, or both. The North Carolina Senate’s plan ignores that reality and opts instead for wishful thinking.

Claims that the Senate plan will cause North Carolina’s economy to boom are simply empty promises. Any boost from cutting income taxes will be canceled out by the spending cuts or tax increases the state will be forced to adopt to balance its budget.

Elimination of the corporate income tax is largely a giveaway to multistate corporations that — rather than creating jobs — will likely stick the savings in an out-of-state bank or use it to pay higher dividends to stockholders, most of whom don’t live in North Carolina.

The plan’s personal income tax cuts won’t likely create jobs, either. Most small businesses would get a tax cut so small that it wouldn’t even cover one worker’s salary. Plus, small businesses rely on state education, roads, and other services that would degrade year after year under this plan.

To ensure a bright economic future, North Carolina should focus on strengthening the K-12 and higher education systems that have set the state apart in the past but faced deep cuts in recent years due to the recession. Blowing a huge hole in the state budget would make that crucial task much harder. North Carolina has nothing to gain and much to lose from the Senate’s misguided plan.

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The Senate Finance Committee is currently debating and will likely vote on the Senate leadership’s new version of the House tax plan passed on Monday evening. This plan is an extremely costly one that provides huge tax cuts to North Carolina’s wealthiest residents and profitable corporations. The fiscal analysis provided with the tax plan shows that more than $1 billion in revenue would be lost each year once the plan is fully implemented. And, the cumulative impact over the next five years is equivalent to one-fifth of today’s budget. This means cuts on top of the drastic cuts enacted over the last several years. Read More

NC Budget and Tax Center

Today in Senate Finance, legislators heard from four academic economists on the one of the key dimensions of the current tax reform debate—the effect of taxes on economic growth.   Their presentations supported the effort of tax reform but on numerous occasions raised concerns about the potential economic impact of spending cuts that would have to be made if a tax plan was not revenue neutral.

The fact that both the House and Senate have proposed plans that are not revenue neutral but lose revenue should raise concerns. 

Here are some other findings from the research to consider:

Tax cuts have failed time and time again to generate economic growth. Over the last 65 years, changes in tax rates have had virtually no impact on economic growth, and the cut in the top tax rates in 2001 and 2003 failed to generate more savings, investment or productivity.  Additionally, The 9 states with the nation’s highest income tax rates –including California, Ohio, and Maryland—have experienced better economic performance than the 9 states with the lowest income tax rates, including Texas, Tennessee, and Florida.

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NC Budget and Tax Center

This is the sixth of a six-part blog series. (See Part 1, Part 2, Part 3, Part 4, and Part 5)

What would the House tax plan mean for North Carolina taxpayers? In this blog series we highlight the experience of sample taxpayers under the House tax plan. In conjunction with a distributional analysis of the tax plan which gives a better picture of the full impact, these fictional but true to life profiles will demonstrate that middle-, fixed- and low-income taxpayers would lose under this plan while the wealthiest will gain.

A few people do win under House tax plan

Janie and Jeff are owners of a successful chain of hardware stores in North Carolina. They are married with two college-aged children and earn about $1 million a year in household income. They live in Raleigh and also enjoy a vacation home in Wilmington.

Under the House tax plan, their tax load would go down by $11,169, or almost 15 percent compared to current tax laws. When they realize what the difference would be in their tax bill, they are pleasantly surprised. They decide that if the plan passes, they will set aside the additional money from the tax cut to boost their retirement savings.

NC Budget and Tax Center

This is the fifth of a six-part blog series. (See Part 1, Part 2, Part 3, and Part 4)

What would the House tax plan mean for North Carolina taxpayers? In this blog series we highlight the experience of sample taxpayers under the House tax plan. In conjunction with a distributional analysis of the tax plan which gives a better picture of the full impact, these fictional but true to life profiles will demonstrate that middle-, fixed- and low-income taxpayers would lose under this plan while the wealthiest will gain. 

How a supposed tax cut can still equal an overall loss

Bob and Sue are married with an infant and toddler. Bob teaches 2nd grade at the local public school and Sue stays at home to take care of their two young children. With Bob’s salary as a teacher, they make about $46,000 a year. They often feel like they’re struggling to afford the necessities and live paycheck to paycheck. They aren’t able to go out to eat or take trips with the kids, but they are able to provide the necessities.

Under the House tax plan, Bob and Sue would see their tax load go down by about $63, or about 2 percent compared to current tax laws. When the couple becomes aware of this slight reduction in their tax load, they aren’t very excited because they have also been following the state budget debate and know that their oldest child, who they thought would be eligible for Pre-K services, would no longer qualify due to budget cuts that would have to be enacted to pay for the tax cuts. Read More