Bad budget deal would lock NC into continued tax cuts for corporations and the wealthy, undermining affordability and well-being

In a recent joint press conference, NC House Speaker Hall and Senate President Berger announced the outline of a state budget deal that would continue state income tax cuts for corporations and the wealthy few. The proposed tax cuts and constitutional amendments included in the deal fail to address North Carolinians’ concerns with the rising cost of affording the basics, while continuing tax policies that 80 percent of North Carolinians say have not benefitted them personally.

Constitutional amendments will lock North Carolina into chronic underfunding at multiple levels of government

While the vast majority of North Carolinians say they want a state budget that invests more in education, infrastructure, and health care — even if that means corporations and the wealthy pay more in taxes —  the budget deal struck by NC General Assembly leadership would advance constitutional amendments that would make public dollars hard to come by at multiple levels of government, making scarcity in our communities a permanent feature of life in North Carolina.

Legislative leaders agreed to send a constitutional amendment to the ballot in November that would cap personal and corporate income taxes at 3.5 percent, cutting in half the current cap of 7 percent and further locking North Carolina into the status quo of a tax code designed to benefit the rich at the expense of funding essential services.  The lower cap would increase the likelihood of future harm to the vast majority of North Carolinians, including:

• Preventing lawmakers from passing a graduated personal income tax and higher corporate income tax that could restore a more equitable tax code by taxing corporations and people with very high incomes at a rate over 3.5 percent
• Creating a greater reliance on more regressive revenue sources, like sales taxes, fines, and fees, that disproportionately affect those with lower incomes
• Making it harder for our state to provide adequate public services that create opportunity for everyone, regardless of personal wealth or the wealth of their county
• Damage our state’s credit rating, making it more expensive for governments to borrow money when needed

A lower income tax cap is also likely to increase pressure on local governments and property taxes, with rural counties hit the hardest. But in a double whammy for local communities, the NC House Speaker and Senate President also agreed to send a constitutional amendment to the voters that would limit local governments’ ability to fund community priorities through property taxes — a proposal that does nothing to make housing more affordable or target property tax relief where it’s needed. Instead, an across-the-board property tax limit asks NC families to accept fewer services, tighter local budgets, higher fees, and increased pressure on household budgets.

Personal income tax cuts and corporate income tax elimination will continue

As the chart below shows, the deal struck by NC General Assembly leadership maintains the overall arc of scheduled cuts to the personal income tax rate, reducing the rate to 3.49 percent in 2027 from its current rate of 3.99 percent, and resulting in an eventual rate of just 2.49 percent.

Compared to current law, the new schedule offers tweaks that do not change the endgame, with a rate of

• 49 percent in Tax Years 2027, 2028, and 2029;
• 24 percent in Tax Years 2030, 3031, and 2032;
• 99 percent in Tax Years 2033 and 2034;
• and two unspecified revenue triggers after 2034 that would drop the rate to 2.74 percent and finally 2.49 percent. (Under current law, revenue triggers are projected to drop the rate to 3.49 percent in 2027 and 2.99 percent in 2028, but because revenue forecast data is not available after 2028, it is uncertain in which year the rate would drop again to 2.49 percent.)

The deal makes no change to scheduled cuts to the corporate income tax rate, which currently sits at 2 percent and will be eliminated in 2030. More than 90 percent of revenue lost to the corporate income tax elimination will be exported to out-of-state residents, mainly corporate shareholders and executives.

Tax cuts skew to the rich and will increase income inequality

As the chart below shows, the tax cuts included in this budget deal would result in an average tax cut next year of over $7,000 for the richest 1 percent of households (with incomes above about $870,000), but just $170 or less for the majority of households. If the 2.49 percent tax rate — the endpoint of the budget deal — were in place today, the richest 1 percent would save nearly $22,000 on their annual tax bill. Meanwhile, North Carolina households with lowest incomes (who pay the largest share of their income in state and local taxes each year), would save just $30, all while coping with steep federal cuts to food assistance and health care.

Even after controlling for income, as the chart below shows, the richest 1 percent of households continues to receive out-sized benefits from proposed tax cuts. As a share of income, the tax change for the richest 1 percent is more than 6 times greater than the cut for lowest-income households. In other words — as a matter of simple math — the proposed tax cuts will increase after-tax income inequality both in dollar terms and as a share of income in North Carolina.

Lost revenue will block public investment in affordability priorities and community well-being

Continued income tax cuts not only increase income inequality and fail to deliver meaningful resources to most North Carolina households, they also cost the state billions in lost revenue — meaning fewer dollars are available to make the housing, child care, and education investments that families, workers, and employers are asking for. Those losses come on top of repeated corporate and personal income tax cuts since 2013, and will continue to come at the expense of full funding for North Carolinians’ priorities.

The tradeoffs for North Carolina are clear:

• The elimination of the corporate income tax will cost North Carolina communities over $1.3 billion in lost revenue, relative to the current rate.
  • For roughly the same cost in 2026, the state could fully cover counties’ increasingly burdensome costs for administering the SNAP program ($190 million), cover high-end estimates for new costs for SNAP benefits that will be shifted onto the state from the federal government ($420 million), and establish a Working Families Tax Credit equal to 20 percent of the federal earned income tax credit ($580 million).
• Dropping the personal income tax rate to 3.49 percent next year is equal to a revenue loss of $2.1 billion, relative to the current rate.
  • For roughly the same cost, the state could provide a 10% average raise for teachers, free school breakfast for students, and subsidized child care for nearly 100,000 North Carolina children.
• Dropping the personal income tax rate to 2.49 percent is equal to a revenue loss of over $6 billion, compared to the current rate.
  • For roughly the same cost in 2026, the state could fully fund the Leandro Plan and provide funding for the Housing Trust Fund to support 150,000 North Carolina families in accessing affordable housing.

North Carolina deserves long-term, transparent planning for how the state will fund the priorities that people have for their communities — not a state budget process that lurches from crisis to crisis while state lawmakers continue to prioritize tax cuts that overwhelmingly benefit the wealthiest households and large corporations.