Lowering the income tax limit in the state constitution would lock future North Carolinians into today’s bad tax policy

Updated: June 22, 2026

The NC General Assembly has passed a bill to put a constitutional amendment on the ballot in November that, if approved by voters, would lower the maximum allowable income tax rate to 3.5 percent.¹Lower Taxes for All NC., Senate Bill 1080 / SL 2026-4, NC General Assembly 2025–2026 (2026). https://www.ncleg.gov/BillLookUp/2025/S1080. The state constitution already limits the maximum income tax rate, but this new, even lower income tax cap would lock in tax breaks for the wealthy and profitable corporations.²The state constitution was amended in 2018 to lower the maximum allowable income tax rate from 10 to 7 percent. However, this amendment is the subject of an ongoing court case, NC NAACP v. Moore, arguing that the amendment is invalid because it was referred to voters by a racially gerrymandered legislature. For the purposes of analysis here we have modelled the more conservative estimate of the impacts of going from a 7 percent to a 3.5 percent income tax rate. For more information see State Court Report. “North Carolina NAACP v. Moore.” September 5, 2025. https://statecourtreport.org/case-tracker/north-carolina-naacp-v-moore. 

• It would block future lawmakers from fair revenue options when needed. 
• It would have no immediate effect on how much people are paying in taxes, because the personal income tax rate will already go to 3.49 percent in 2027.³The personal income tax rate is 3.99% in 2026. As of June 16, 2026 personal income tax rates for 2027 and 2028 will drop to 3.49% and then 2.99% based on “revenue triggers.” This means if General Fund revenue in the previous fiscal year reaches a certain amount, it will automatically trigger a rate cut. Current revenue forecasts show that revenue in both years will reach the trigger threshold, leading to a rate cut. https://www.osbm.nc.gov/facts-figures/economy/revenue-forecasting/consensus-revenue-forecast
• The corporate income tax rate is already at 2 percent and will be completely eliminated by 2030 unless legislators reverse course.⁴https://ncbudget.org/citfactsheet

NC is faced with rising costs, and North Carolinians want their elected leaders to fund the things that will make their life more affordable like child care, affordable housing, and health care. They also want investments that connect their families and neighbors to opportunity through excellent public schools, affordable public universities and community colleges.

 

A 3.5% income tax cap in our state constitution would:

Further lock North Carolina into an upside-down tax code that benefits the super-rich and highly profitable corporations

When it comes to state and local taxes, North Carolina already has an upside-down tax code that asks the most from families with the least. The richest 1 percent of households in our state make well over $1 million each year on average but pay just 6 percent of their annual income in state and local taxes. Meanwhile, the average household in the bottom 20 percent, making less than $22,000, still pays 11 percent in taxes — a portion almost twice as high as the millionaires.⁵“North Carolina: Who Pays? 7th Edition,” Who Pays? (Institute on Taxation and Economic Policy (ITEP), January 9, 2024), https://itep.org/north-carolina-who-pays-7th-edition/. This analysis is based on 2023 income levels and 2024 tax law.

This amendment would lock in a 3.5 percent cap on personal income taxes, blocking lawmakers from restoring a more equitable tax code that asks wealthy people to pay a higher rate. Cutting corporate income taxes is a bad deal for North Carolina because more than 90 percent of the tax benefits go to people outside the state, primarily corporate shareholders and wealthy executives. 

Stricter limits on income taxes also mean a greater reliance on more regressive revenue sources like sales taxes, fines, and fees. People with lower incomes spend a far greater share of their earnings on purchases subject to sales tax than wealthy people, and these taxes are already a growing share of state revenue.⁶Statistical Abstract of North Carolina Taxes 2024 Advance Edition. North Carolina Department of Revenue, 2025. https://www.ncdor.gov/documents/reports/statistical-abstract-north-carolina-taxes-2024/open. A lower income tax cap will lock in these bad choices.

Make it harder for our state to provide adequate public services and jeopardize our credit rating

By lowering the income tax cap from 7 percent to 3.5 percent, this amendment would block our state from generating over $14 billion in annual public revenue — an amount that will grow over time.⁷Special data request to the Institute on Taxation and Economic Policy (ITEP). North Carolina families are already seeing the impacts of keeping taxes low for the wealthy few and profitable corporations: tuition increases across the UNC system, teachers leaving our public schools for positions in Virginia where they’re paid nearly twice as much, record closures of child care programs, and more.⁸“UNC Board of Governors Votes to Increase In-State Undergraduate Tuition for the First Time in Nine Years.” February 26, 2026. https://www.northcarolina.edu/news/unc-board-of-governors-votes-to-increase-in-state-undergraduate-tuition-for-the-first-time-in-nine-years/; Amy Cockerham. “Educators Exit NC for Better Pay.” Public Ed Works, November 20, 2025. https://jjj.publicedworks.org/2025/11/educators-exit-nc-for-better-pay/; Katie Dukes. “North Carolina Has Record Net Loss of Licensed Child Care Programs since Mid-2023.” North Carolina Health News, January 31, 2026. https://www.northcarolinahealthnews.org/2026/01/31/north-carolina-has-record-net-loss-of-licensed-child-care-programs-since-mid-2023/. With an adequate and fair tax code, our state could address these issues and make life easier for us all, but a 3.5 percent income tax cap would make that all but impossible.

When income tax limits are put into the state constitution, they can also damage a state’s credit rating, making it more expensive for governments to borrow money for infrastructure and similar projects. Major credit rating agencies in the U.S. name constitutional limits on taxes as a negative factor for bond ratings because they severely constrain government’s options for repaying loans.⁹Rating Methodology: US States and Territories. Moody’s, 2025. https://www.moodys.com/research/Rating-Methodology-US-States-and-Territories-Rating-Methodology--PBM_1440164#5d113f2038d289f391614c39043629e8; Methodology For Rating U.S. Governments. Ratings. S&P Global, 2024. https://www.spglobal.com/ratings/en/regulatory/delegate/getPDF?articleId=3448944&type=COMMENTS&subType=CRITERIA&defaultFormat=PDF. Not surprisingly, research has found that more restrictive state tax limits are associated with lower credit ratings and higher borrowing costs.¹⁰Judith I. Stallmann, Steven Deller, Lindsay Amiel, and Craig Maher. “Tax and Expenditure Limitations and State Credit Ratings.” Public Finance Review 40, no. 5 (2012): 643–69. https://doi.org/10.1177/1091142112446844; Megan Randall and Kim S. Rueben. Sustainable Budgeting in the States: Evidence on State Budget Institutions and Practices. Urban Institute, 2017. https://www.urban.org/research/publication/sustainable-budgeting-states-evidence-state-budget-institutions-and-practices.

Tie lawmakers’ hands in the future and prevent them from being accountable to their constituents

If the income tax cap in our state constitution is lowered, it will be extremely difficult to undo. During recession in the 2000s, North Carolina lawmakers were able to temporarily raise income taxes on people with very high incomes, taking pressure off local governments and generating millions of dollars in funding to support public schools facing budget shortfalls.¹¹Alexandra Forter Sirota. Income Tax Rate Cap Amendment Is Costly for Taxpayers, Communities. Budget & Tax Center. North Carolina Justice Center, 2018. https://www.ncjustice.org/wp-content/uploads/2018/12/BTC-REPORT-tax-amendment-2018.pdf. Research has shown that if the goal is long-term economic health, raising taxes on people with high incomes is a better strategy than spending cuts during a recession.¹²Nicholas Johnson. Budget Cuts or Tax Increases at the State Level: Which Is Preferable When the Economy Is Weak? Center on Budget and Policy Priorities, 2010. https://www.cbpp.org/research/budget-cuts-or-tax-increases-at-the-state-level.

A lower tax cap would tie lawmakers’ hands, limiting their tools to respond to their constituents’ needs with public funds generated through tax policies that ask the wealthy and profitable corporations to pay their fair share.¹³Bernie Gallagher. “State Limits on Revenues and Budgets Stifle Democracy.” Center on Budget and Policy Priorities: Off the Charts, June 27, 2023. https://www.cbpp.org/blog/state-limits-on-revenues-and-budgets-stifle-democracy. At a time when the state is faced with rising costs from federal cuts to health care and food assistance, and current funding levels are leaving needs unmet, a lower cap would also hamstring future elected leaders’ ability to make different policy decisions than the bad ones being made today.

Increase pressure on local governments — especially rural counties — while the property tax amendment could limit local options

State revenue is an important source of funds for many counties and cities, so a state income tax cap will have ripple effects on local services. At least one-third of NC counties, which are overwhelmingly rural, rely on state funds for over 15 percent of their annual budget.¹⁴NC Budget & Tax Center analysis of 2025 County Annual Financial Information Reports, available at https://logos.nctreasurer.com/Reporting/Report/External?applicationCode=AFIR These counties will be hit the hardest when state legislators can’t adjust income tax policy to meet funding needs. Facing limited state support, local governments will have even fewer choices if legislators also pass property tax limits.