Corporate tax cuts worsen racial inequality in North Carolina and US
Most of us across North Carolina — Black, brown, and white — want to contribute to our communities and leave things better for the next generation. But as our work has made the state prosper, a handful of politicians have rigged the rules to redirect resources from our communities to the richest few and to large, multistate corporations. One of the starkest examples of these handouts to the wealthy is the current policy that will eliminate our state’s corporate income tax by 2030 — something that 77 percent of North Carolinians oppose. A recent report authored by ITEP and Liberation in a Generation looks at national data to show how corporate tax cuts don’t enrich just enrich people who are already wealthy — they make racial inequality worse. As key elements of the federal Trump tax cuts for rich people and corporations are set to expire in 2025 — and current North Carolina policy leads our state down a path of deeper inequitable cuts for years to come — this analysis shows the need for a course correction to support racial equity in our state and country.
Money from corporate tax cuts flows to shareholders, who are disproportionately white
Mainstream economists agree that the immediate benefits of corporate tax cuts are investors who own corporate assets, or corporate shareholders. This is because when corporations pay less taxes, their after-tax profits rise, which can enrich shareholders in two ways. Shareholders can receive money directly through dividends (cash or stock payments) or stock buybacks (when corporations purchase their own stock from shareholders.) If corporations keep their after-tax profits and use them to increase the value of their company, shareholders see larger financial gains when they sell stock to other investors.
Corporate tax cuts make racial inequality worse because people who own corporate stock are disproportionately white, and among households that do own stock, white households own a lot more of it than Black and Latine1We use Latine here to refer to households identified as Hispanic or Latino in the research we’re citing. Because Hispanic/Latino ethnicity is categorized separately from race, households could be of any race. White and Black households only include those who are not Hispanic or Latino. households. Analysis from the Pew Research Center shows that in 2022, almost two-thirds of white families owned publicly traded stocks. In comparison, less than 40 percent of Black families and just 28 percent of Latine families did. (These measurements include indirect stock ownership through funds like retirement accounts.)
Among households that do own stock, white families own a lot more: The median value of stock held by white households is $67,800. This is 2.8 times as much as Latine families and over 4 times as much as Black families.
By enriching shareholders, corporate tax cuts drive racial wealth inequity
Disparities in stock ownership are significant driver of racial wealth inequities — which means that corporate tax cuts, by enriching shareholders, play a key role in creating the racial wealth gap. ITEP and LibGen’s research shows that in 2023, the average white household’s wealth in the United States was over 4 times as high as the average Black households, and this inequality has gotten worse since 1989. If corporate stock ownership is excluded from this measure, the racial wealth gap is still large, but significantly lower: white households have a little more than 3 times as much wealth as Black households. And without corporate stock, the gap would not only be lower, it would have shrunk since 1989.
Corporate tax breaks flow to foreign and out-of-state investors instead of funding our public services
In the first year of a federal corporate tax break, the taxpayers within the U.S. who benefit are disproportionately white. If investors outside the country are excluded, white households get 88 percent of the benefits of the tax break, even though they make up just 67 percent of U.S. taxpayers.
But, as the chart below shows, 40 percent of the owners of corporate stock are investors outside the country, who don’t pay taxes inside the US. Racial inequities are stark regardless: Black and Latine households each see only 1 percent of the benefits.
What does this mean for North Carolina? With current policy set to eliminate the state corporate income tax by 2030, this research points to how corporate income tax cuts in North Carolina have worsened racial inequality in our state. To the extent that these cuts will benefit any North Carolinians, the money will mostly go to the richest families. When we look at who within the state will benefit from the elimination of the corporate income tax, more than two-thirds will go into the pockets of the richest 20 percent of North Carolinians — with nearly half going to the richest 5 percent. Black, Latine, and American Indian families in NC are far less likely to be in this upper echelon of incomes, whereas white families are disproportionately represented among the wealthiest households, so will disproportionately reap the gains from corporate tax cuts.
But the vast majority of the cuts will actually leave the state, going to shareholders living across the country and across the world. More than 9 in every 10 dollars North Carolina gives away in corporate tax cuts will flow to investors outside the state.2Based on North Carolina specific analysis conducted by ITEP. The elimination of the state corporate income tax will cost over $2 billion in revenue each year. By stopping the elimination, our state could instead use this revenue for public investments that benefit everyone in North Carolina.
General Assembly leaders have shown they’re still committed to tax cuts that give our state’s money away to corporations and their wealthy shareholders. Not only are they taking North Carolina down the path to a zero corporate income tax rate, but the NC Senate recently tried to push through a ballot measure to lower the state’s income tax cap, which would lock future state residents into today’s bad tax policies. Instead, we can come together to demand state and federal tax policies that fund a racially equitable future for all of us.
Footnotes
- 1We use Latine here to refer to households identified as Hispanic or Latino in the research we’re citing. Because Hispanic/Latino ethnicity is categorized separately from race, households could be of any race. White and Black households only include those who are not Hispanic or Latino.
- 2Based on North Carolina specific analysis conducted by ITEP.
