NC Budget and Tax Center

State and local tax policies can advance or block racial equity. How is N.C. doing?

In a major report released today by the Center on Budget & Policy Priorities, researchers present a review of tax policy choices that have historically blocked opportunities for people of color and the ongoing challenge of assuming that tax policy is “race-neutral.”

The findings are particularly important for North Carolina.  Our state gets a mention in the report for recent tax cuts that have fueled the racial divide in our state.  Beyond that, North Carolina has failed to heed the lessons of our history—designing tax policy with the wealthy and white in mind rather than with the possibilities of connecting more people to the wealth-building potential of a good education, affordable home, reliable and quality health care, and thriving communities.

Indeed, of the three major recommendations from the report below, North Carolina has almost completely failed.

  • Strengthen State Tax Structure: Ensure that households with high incomes pay a larger share of their income in state and local taxes than households with lower incomes — the opposite of the upside-down tax systems in place in 9 of every 10 states today. Most states’ tax structures actually worsen racial and ethnic inequities because the tax structures are regressive and households of color are more likely to have lower incomes and less wealth than white households.
  • Raise Revenue to Invest in Overcoming Inequities: Raise sufficient revenue for high-quality schools in all communities and for other investments in education, infrastructure, health, and the like, and target spending to help overcome racial and ethnic inequities and build an economy whose benefits are more widely shared.
  • Improve the “rules of the game”: Improve the fiscal policy “rules of the game” so lawmakers don’t face artificial constraints that prevent them from raising more revenue from wealthier residents or to finance public investments that can promote broadly shared prosperity.

Notably, the recent passage of a state constitutional amendment in N.C. that caps the income tax rate at 7 percent places an arbitrary barrier that prevents progress toward advancing racial equity and the potential to boost North Carolina’s economy.

However, North Carolina policymakers still have many tools that they can and should pursue to advance the shared goal of expanding economic opportunity and an enhancing equity; this includes aligning the state tax code with ability to pay; adequately and equitably funding core services such as schools and health to connect Black, brown and white households to opportunity; and removing artificial constraints on tax and spending decisions such as the recent practice by legislative leaders of arbitrarily constraining spending and leaving needs unmet.

You can read the full report here.

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