Choosing tax cuts today blocks North Carolina from a resilient future

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This morning, the state Senate Finance committee had limited debate about the massive tax cuts proposed in the recently released Senate budget — a budget that will block North Carolina from securing a full and just recovery.

North Carolinians deserve to know why Senate leaders are proposing to cut taxes for the few and for the shareholders of corporations largely operating outside of the state.

As my colleague Suzy Khachaturyan wrote earlier today, the personal income tax rate reduction alone will deliver 74 percent of the tax cuts to the richest 20 percent of North Carolinians when fully phased in. It will do nothing for the North Carolinians struggling with low wages and facing real hardship in putting food on the table and securing affordable housing.

Senate leaders continue to forget that all North Carolinians pay taxes, and the singular focus on changing income tax rates and deductions can’t help the upside-down nature of the sales tax that asks more from the poorest North Carolinians. North Carolinians need a more comprehensive view on taxes than the singular focus on the powerful and well-off that Senate leaders continue to take.

The recently released fiscal note also gives us a first look at the cost. By 2026, the reduction to state revenue — used to support public schools, public health, environmental protection and so much more of the building blocks of our quality of life — will total nearly $5 billion annually. That is roughly 17% of revenue collections for the current fiscal year and adds to the already deep hole that North Carolina finds itself in after nearly a decade of tax cuts.

And even this is likely an underestimate, as the Senate budget proposes outright elimination of the corporate income tax by 2028, and the complete picture of the extent of lost revenue is uncertain.

By phasing in these tax cuts in the years to come, Senate leaders are making a bad bet. There are a lot of reasons to think that the past year of revenue collections are unique. Robust federal aid, changes to tax filing deadlines and on-line sales tax collections, and the inability of the General Assembly to pass a final budget that meets the priorities of communities has meant more dollars collected.

Tax cuts won’t make things better for the everyday people who are the economy. They will make things worse.

The state’s revenue collections are still below what is needed to keep up with the needs in communities. That is the true measure of whether the dollars we have are sufficient. North Carolina continues to fall behind in our commitment to a sound, basic education, our stabilization of the early childhood system, and the accessibility of a post-secondary education. We aren’t protecting the air and water that support the health of people across the state and the natural resources that increase our quality of life.

North Carolina leaders continue to dig a hole when they could have used this moment to build a path to a future where hardship isn’t the norm and every person is considered in our policy process, not just the wealthy few.

By starting the biggest tax cuts after 2024, Senate leaders have signaled that they are aware of the no net tax cut provision yet have chosen to put forth a proposal that would still result in losses for North Carolina

Estimated tax cuts allowed under the American Rescue Plan versus the estimated impact of tax cut proposed, by Fiscal Year

FY21 FY22 FY23 FY24
Tax cuts allowed under the de minimus rule $301,431,000 $306,706,000 $312,687,000 $319,097,000
Estimated revenue losses in Senate Bill 105 $610,000,000 $1,899,800,000 $2,709,800,000

Sources: Center on Budget and Policy Priorities analysis; NC Fiscal Research Division, Senate Bill 105 Legislative Fiscal Note

Our economy needs people to be healthy, to have educational opportunities and a safe, affordable home. Our leaders need to ask profitable companies and the richest to contribute to our efforts to make this state a great one. Only if we go all-in can we build a state that is a great place to live for all people.

Alexandra Sirota is the Director of the Budget & Tax Center, a project of the NC Justice Center. Suzy Khachaturyan, Public Policy Analyst, and Patrick McHugh, Research Manager, contributed to this post.

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