NC Budget and Tax Center

Proposed tax cut bill in Congress would help 3.7 million in N.C.

A majority of the families that benefit from the Earned Income Tax Credit (EITC) are single head of household filers— a filing designation commonly used by single mothers. The same single mothers who are struggling to provide the basics of a healthy and happy life for their children in an economic climate defined by stagnating wages and higher costs for childcare, medicine, and housing. North Carolina’s low- and middle-income working families are struggling to stay afloat as costs rise faster than their pay.

In North Carolina, these same families are responsible for an ever increasing tax burden while our state’s wealthiest individuals and corporations are not being asked to pay their share.

In stark contrast to the Tax Cuts and Jobs Act (TCJA) of 2017 that was heavily tilted in favor of corporations and the wealthy, several Senate co-sponsors just introduced the Working Families Tax Relief Act.

If successful, the Working Families Tax Relief Act will strengthen the highly effective EITC and Child Tax Credit (CTC).    Read more

NC Budget and Tax Center

Trump tax policy helped many of the biggest corporations completely avoid taxes in 2018

With last years’ tax returns now in, it is all the more evident how massive a gift the Trump Administration and Republicans in Congress gave corporate America in their 2017 package of tax cuts. Many of America’s wealthiest corporations received a huge windfall in 2018, even as most Americans face the prospect of declining public services and deepening public debt.

A recent report shows that 60 of the largest corporations managed to pay no corporate income taxes in 2018, and many of these companies actually received substantial tax rebates. A few notable examples of corporations who made off particularly well under the Trump tax cuts include:

  • Amazon: Had $11 billion in revenues from business in the United States and received $129 million in tax rebates.
  • Netflix: Paid no corporate taxes on over $850 million in U.S. income.
  • Chevron: Revenues from U.S. operations of approximately $4.5 billion and received $181 million in federal tax rebates.
  • Halliburton: Took in over $1 billion in U.S. revenues, and received a $19 million tax rebate

These companies managed to avoid taxation by exploiting a range of loopholes in the federal tax code that were either left untouched or actually expanded by the 2017 tax bill.

Capital-intensive companies like Chevron and Delta Airlines were able to slash their taxes using Accelerated Depreciation, a provision well known in corporate accounting circles but not widely understood beyond those circles, that allows companies to claim larger tax write-offs for the decreasing value of expensive equipment.

Amazon and Netflix were leaders in using stock option payments to their corporate executives to avoid millions in corporate taxes. Even though granting stock options does not directly hit companies’ revenues like salaries would, corporations can still claim the value of the options as an expense and thereby reduce their tax bill. Moreover, these options also allow wealthy executives to avoid paying the personal income tax rate on that income, instead paying the lower rate applied to capital gains.

A range of other companies were able to zero out their taxes in 2018 using tax credits for energy production, research and development, and other special treatment still littered throughout the federal tax code.

Instead of draining the swamp, the 2017 tax cuts only gave smart corporate attorneys more bog to explore. The result was predictable: Most working families and small businesses got peanuts (or saw their taxes go up) while many of the biggest corporations in the country avoided paying taxes altogether. Sooner or later we have get serious about getting large and profitable companies to pay their share, or we will all end up paying the bill for tax breaks that mostly benefit the most fortunate.

NC Budget and Tax Center

Millionaire’s tax could raise revenue, spur growth, and advance race equity

Tax week represents a good time to reflect on how North Carolina’s current tax code places limitations on revenue building opportunities for much needed public investments. If North Carolina seeks to fulfill its commitments and ensure prosperity for all of its residents, then it must take advantage of sound policies — like placing high rates on higher incomes through a a millionaire’s tax — that can raise such revenue. Roughly $362 million could be raised from a millionaire’s tax in North Carolina.

Researchers have proposed higher tax rates on higher incomes based on the idea that $1 for a very wealthy person doesn’t make a significant impact on their well-being in the same way that it would for someone with a much lower income. Furthermore, given the high concentration of wealth that exists in the hands of a few — which is overwhelmingly white — placing a higher rate on the highest incomes suggests that it would (1) only impact a small number of taxpayers and (2) begin to address the growing racial wealth gap.

In North Carolina, a higher tax rate on income over $1 million would reduce the size of the average net tax cut for the top 1 percent by 0.5 percent, or $6,461. This would, in part, address the upside-down nature of the tax code while making it less likely that the tax load will continue to shift to low- and middle-income taxpayers as growing needs must be met. Future policymakers would not be inclined to just raise the flat rate on all income but could continue to build a graduated rate structure on higher income.

While our state seeks to provide each of us with a high quality of life, it’s already struggling to keep up with investments needed in the classroom, in the infrastructure that ensures our communities are resilient and connected to opportunity, and in the protections and supports that promote healthy living environments. A millionaire’s tax — and moving to a graduated income tax structure that sets higher rates on higher income — can help North Carolina raise revenue for its priorities, decrease racial inequities, build economic opportunity, spur growth, and address, in part, it’s upside down tax code.

NC Budget and Tax Center

In Medicaid, work requirement will punish those who need help the most

House Bill 655, the “NC Health Care for Working Families” is intended to close the coverage gap and provide health insurance to North Carolinians who previously did not have access. Unfortunately, this bill contains troubling provisions that will harm the very people legislators claim to help. Specifically, the work reporting requirements are an ill-informed and bad faith effort to increase employment. Not only do these provisions fly in the face of the vast amount of evidence which proves they do not work, they are based off of nasty stereotypes and are not reflective of the lives of people struggling to make ends meet. In fact, these requirements restrict access to public supports for the people who need help the most and who rely on those supports to work and lead full lives.

The work reporting requirements in House Bill 655 are identical to those in the nation’s food nutrition program (Supplemental Nutritional Assistance Program or SNAP). Talk Poverty, an editorial project of the Center for American Progress, documents a first person account of just how inflexible and punitive these policies actually are:

My fibromyalgia doesn’t care about my work schedule. It doesn’t time its flare-ups according to my current proximity to heating pads. Even more than Beamer, my service dog, fibromyalgia is the most constant presence in my life, on my mind at all hours of the day. In the morning, my joints could be so sore that I forgo my cup of coffee, because I can’t trust my grip and I don’t want to clean up another shattered mug. By the afternoon, those aches may give way to a fog that clouds my mind until any attempt at sustained concentration feels like running up a downward escalator — a lot of effort, but little payoff.

People with disabilities are supposed to be spared from the cuts. But in practice, many people with serious health conditions will be at risk of losing food assistance, because SNAP uses other government programs with an extremely limited definition of disability as proxies for disability status. So, I’m on the chopping block.

If I need to miss a shift because I woke up feeling particularly sore or because the afternoon fog rolled in early, the benefits I rely on to eat are threatened. Good day or bad, doctor’s appointment or not, I have to make sure I’m on time and ready, smiling at the customer service desk of the museum that is my work place.

Read the full story here.

NC Budget and Tax Center

To a man with a hammer, everything looks like a nail: G.A. pushes another business tax cut

The latest tax cut proposal from the leaders of the General Assembly, Senate Bill 622, will be heard later today in Senate Finance. It is more of the same.

As Mark Twain famously quipped — “to a man with a hammer, everything looks like a nail” — and indeed the leaders of the General Assembly have once again looked at the problems with our tax code and suggested that more tax cuts are needed. This time the proposal calls for reductions to the franchise tax — a tax paid overwhelmingly by businesses with high net worth — while continuing to use the flawed approach of increases in the standard deduction to address the state’s upside-down tax code.  (A tax code that currently asks middle- and low-income taxpayers to pay more than wealthy taxpayers will continue to fall short of what the state needs to maintain current services for the growing population.)

Senate Bill 622 doesn’t really address our flawed tax code or the urgent reality  that our state has at least $3.6 billion less than it would have had under the 2013 tax code, as well as a backlog of community needs that threaten to block our well-being and success in North Carolina.

You can read more about our analysis of the franchise tax proposal here.

Today, I want share our latest analysis of the issue with continued increases in the standard deduction. There have been a few such increases since the tax changes began in 2013.

Because a large number of North Carolinians claim the standard deduction rather than itemize, this is a poorly targeted tool to addressing the upside-down nature of the tax code. Analysis shows that, of the total net tax cut from the increase in the standard deduction, 27 percent will actually go to the top 20 percent while just 7 percent will go to the bottom 20 percent, whose income leaves them in poverty each year.

There is a better tool to address our upside-down tax code.  North Carolina leaders could take the dollars that they would commit to an increased standard deduction — roughly $90 million — and enact a state Earned Income Tax Credit.  The Earned Income Tax Credit provides working families who earn low wages with a credit against their total taxes paid — which often means refunding dollars back into their pockets so that they can meet basic needs and build assets.  A state EITC would deliver 36 percent of the net tax cut to working taxpayers in the bottom 20 percent of the distribution and zero percent to the top 20 percent. It would also add to the many benefits documented from having a federal EITC, including improved maternal and child health outcomes, educational success, and labor force participation.

It is time for the General Assembly to recognize that there are proven tools out there that our state’s families are missing out on because they continue to reach for a hammer when they need a more varied toolbox.