North Carolina’s final budget includes deep personal income tax cuts and elimination of the corporate income tax over the next 10 years that will deepen hardship and prolong the recovery rather than supporting people and their well-being.
Sadly, rather than invest the state’s available billions in meeting basic near- and long-term needs, lawmakers chose to rely on federal funds to funnel temporary relief to those hit hard by the pandemic, while holding back from sustained investments in housing, health care, and education.
Despite huge structural needs and inequities exposed by COVID-19, lawmakers on both sides of the aisle have renewed the state’s commitment to the failed trickle-down approach of the status quo.
By once again choosing tax cuts over our collective well-being, elected leaders have put their faith in the wealthy few and out-of-state corporations, hoping they will somehow save the day and lay the groundwork for an economically prosperous and resilient state.
The record shows that this promise is unlikely to materialize. Since North Carolina began dramatically cutting income taxes in 2013, it has not fared better than any of its neighbors.
The state could provide the jobs and growth needed by investing in its homegrown potential and its own people by ensuring the rules of the game work in favor of average households. Instead, the new budget will widen economic inequality, hinder employment equity, and worsen our state’s overall economic outcomes.
Meanwhile, the revenue that will be lost from sending tax breaks to the wealthy and profitable corporations will block the state from becoming more resilient in the future.
Here are three numbers that help illustrate these hard truths:
- We will lose 20 percent of General Fund tax revenue, or $8 billion over the next 10 years. This money could help ensure that schoolchildren can receive a sound basic education, and that their families have a shot at obtaining health care, decent and affordable housing, and basic protections against COVID-19 in every workplace. This is a steeper revenue reduction than experienced in any of the recent economic downturns in North Carolina and an artificial one—created by policy choices that will deliver worse outcomes. It builds on the reductions already locked in by the 2013 income tax changes that have decimated public health infrastructure, resulted in lower wages for public employees, and limited progress in addressing the affordable housing crisis.
- $10 billion is a conservative estimate of the gap between available revenue and required expenditures that future policymakers will face when the tax cuts are in full effect in FY ’30. This figure takes into account the state’s constitutional requirement to fund a sound, basic education and the need to keep up current service levels in the face of rising costs and a growing population. The actual number will likely be even higher. That we don’t know what will be required to protect people’s health and well-being and adapt to a changing employment and technological landscape a decade from now makes this figure even more worrisome.
- 10.25 percent is the astounding state sales tax rate that would be required to fill the massive new hole caused by these cuts. To be clear, this would be a disastrous option that would shift the state’s tax load even more dramatically onto middle- and low-income taxpayers than it is already. The poorest 20 percent of North Carolinians would see their state and tax contributions as a share of income increase by more than 3 percent—adding to an already upside-down tax code that asks increasingly less from millionaires. Sadly, however, based on the trend of protecting the wealthy and powerful few, it seems the most likely choice if the option of raising new revenue to meet future needs is ever again placed on the policy table. The alternative would be reducing services in communities or shifting the responsibility to local governments.
It isn’t inevitable that North Carolina policymakers on both sides of the aisle had to choose these deep income tax cuts.
There is a combination of policy choices that put people first and ask the wealthy and corporations to pay what they owe. Such policies would deliver a better outcome for all North Carolinians and put us on stronger economic footing for the future.
The consequences of this new budget will ripple through our everyday lives for years to come, and North Carolina will fall even further behind in securing the well-being of people and the economy.
Alexandra Sirota is the director of the N.C. Budget & Tax Center.