When North Carolina legislators had a chance to address the rapidly increasing economic inequality of the past 30 years, they ignored the needs of workers and the state and instead passed harmful tax cuts. Instead of supporting low-income households or making sure large corporations pay what they owe, the 2021-2023 budget slashes the corporate income tax (CIT), a move that disproportionately benefits wealthy, out-of-state executives and shareholders.
When a company gets a tax break and so turns a larger profit, the primary result is a higher stock value – not more jobs or higher wages for average people. This money goes straight into the pockets of already-ultra-wealthy executives, who own stock in overwhelmingly disproportionate amounts compared to the average American.
The myth that shareholders then pass these gains on to their workers has been touted since the 1980s, but the promised benefit for average workers has never materialized. When North Carolina passed tax cuts in 2013, the state’s personal income growth rate dropped in comparison to neighboring states. In 2017, when the federal government passed another round of tax cuts, fewer than 5% of workers saw bonuses or raises tied to the change.
Not only will eliminating the CIT in the state budget fail to boost workers’ incomes, but much of the corporate savings from the tax break will vanish from the local economy altogether. Estimates show that over 80% of this break will go to out-of-state shareholders. Of the small number of beneficiaries in North Carolina, almost 70 percent of the tax cut will go to the richest 20% of taxpayers. The bottom 20% of North Carolinians will see only 2% of these tax changes.
These cuts will cost the state nearly $1 billion, money that could ensure equality-boosting programs like child care, a sound education for every child, and other health and income supports that make sure families are safe, secure and well.
Additionally, this policy choice directly fuels a dangerous trend that has exploded in the past 30 years: the growth of the billionaire class. In 1990, there were only 66 billionaires in the country, and the wealthiest among them was only worth $5.6 billion. Today, there are more than 600. Elon Musk, the richest man in the world, crossed the $300 billion net worth threshold in early November.
The most dramatic change, however, has been in the past year. Since the start of the pandemic, when over 20 million jobs were lost in a few short months, massive stock market gains have resulted in billionaires adding over a trillion dollars to their collective net worth. Eliminating the corporate income tax boosts this disparity.
By buying into the fable of tax cuts, legislators are costing the state crucial funds and hurting the average North Carolinian.
Emma Cohn is an intern with the N.C. Budget & Tax Center.