Deeper Dive: Which NC budget proposal delivers for families struggling with the cost of living, and which delivers for the top 1 percent?

Note: This blog post is one of a two-part publication providing information about the numerous tax policies in the 2025-27 NC State Budget process. We recommend starting with Part 1 here to read a general summary of the numerous tax policies listed out in the Governor, House, and Senate tax proposals.

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Too many North Carolinians are struggling with the rising cost of affording the basics. And with moderate-income households likely to struggle even more with increased costs due to congressional and executive actions at the federal level (even as the richest get richer from proposed federal tax cuts), it’s worth taking a closer look at how those households fare under competing state budget proposals from the governor, House, and Senate. 

Analysis from Part 1 shows that North Carolina households earning less than $50,000 fare best under the governor’s proposed tax policies and worst under the Senate’s in the near term. But which tax policies account for those differences, and how do low- and moderate- income North Carolinians fare when the House and Senate’s income tax rate reductions are fully implemented in future years?

Working Families Tax Credit outperforms ‘no tax on tips,’ standard deduction, and next year’s income tax cuts for households earning under $50,000

The charts below show how different tax policies in the three state budget proposals contribute to the overall tax change for North Carolinians with various incomes. Hovering over the “Working Families Tax Credit” in the legend shows that this policy alone puts over $200 a year on average back in the pockets of families earning less than about $50,000, compared to the vanishingly small impact of “no tax on tips,” raising the standard deduction, and cutting income tax rates. In fact, the average North Carolina family earning between about $25,000 and $50,000 a year could add up their tax cut from the House’s personal income tax cut ($36), standard deduction increase ($21), “no tax on tips” policy ($7), and sales tax holiday ($60 at the most) and still be more than $100 short of what they could expect from a Working Families Tax Credit next year ($226), let alone what they could expect from the total tax cut provided by the governor’s policies ($314). 

Who benefits in the longer term? 

Both the House and Senate budget proposals maintain scheduled income tax rate reductions many years into the future, without knowing what North Carolinians’ needs will be at that point in time, though the timeline and conditions for those reductions differ in important ways. 

As the chart below shows, any lawmaker who believes continued income tax cuts are good news for the average North Carolinian has some hard truths to account for: 

• House: When fully phased in, the House’s tax policies (including a PIT rate of 2.49 percent and the elimination of the CIT) will amount to an average tax cut of just $104 a year for households with incomes below about $25,000. The governor’s budget would deliver almost $250 more to these families — even before accounting for likely increases in the value of tax credits over time.  

• Senate: The Senate delivers even smaller tax cuts for families struggling the most. The 1 in 5 North Carolina households with incomes under about $25,000 can expect a meager $44 tax cut when the Senate’s plan is fully phased in. 

Simultaneously, the House and Senate’s fully implemented plans would deliver a huge $25,000 and $32,000 tax cut each year to the richest 1 percent, respectively, compared to 2025 tax policies. 

Moderate income families that in the long term receive a larger cut under the House and Senate’s plans than the governor’s will likely find that their tax change doesn’t actually make life easier: When fully implemented, the House and Senate tax plans will amount to state revenue losses of $8.7 billion a year and $10.4 billion a year respectively, stripping funding from the public services that regular North Carolinians rely on.2 This blow to state finances will leave state lawmakers ill-equipped to protect North Carolinians from anticipated cost shifts from the federal government. Low- and moderate-income households particularly will face higher costs for food and health care if Congress enacts the massive cuts to SNAP and Medicaid that have been proposed by the federal House.

It is within the power of state lawmakers to protect North Carolinians from the worst impacts of looming federal cuts — and to make targeted, forward-looking investments in the foundations of a thriving state: affordable housing, accessible child care, strong public education, and reliable health care. These investments not only ease the pressure on family budgets — they also fuel economic growth, strengthen the workforce, and create more opportunities for communities across North Carolina.

But that future becomes out of reach when billions of dollars are drained from the state budget each year through tax cuts that disproportionately benefit the wealthiest households and corporations. These policies don’t pay for themselves — they cost North Carolinians the chance to build a stronger, more equitable economy.

If lawmakers continue down this path, they are choosing short-term gains for a few over long-term prosperity for all. They are choosing to undercut the very systems that allow families, businesses, and communities to succeed. North Carolina can’t afford that choice.