Governor’s NC budget would stop some of the deep income tax cuts for rich people and corporations

A state’s tax code must be able to raise the revenue needed to make child care accessible and affordable in every county, make job training for high demand and good paying jobs available, and ensure that our air and water are safe to drink and breathe.  It must do so for the long haul, in a sustained way. It should not ask those with the least to pay the most as a share of their income.

The Governor’s budget would take a modest step toward making sure North Carolina has the revenue we need for things like education, clean air and water, and child care. Even better, the proposal would do it the right way, by requiring rich people and corporations to chip in more for these vital services.

The Governor proposes to keep the corporate income tax at the already low rate of 2.5 percent and reduce the personal income tax rate to 4.5 percent for households with incomes below $200,000 for those married and filing jointly ($100, 000 for single filers) in the second year of the biennium, while keeping the rate at 4.75 percent for those with incomes above. The Governor would have the rate for those with incomes below $200,000 continue to drop to 3.99 percent by 2027.

In so doing, the Governor can make modest progress to address priorities like early childhood education, job training, and environmental protection into the future. It is possible that such progress could be sustained without forcing cuts in other areas of the budget or requiring revenue to be raised from more regressive sources, such as sales taxes or fees over time. The Governor’s tax plan also minimizes —though doesn’t completely erase — the lopsided benefit going to the very wealthiest North Carolinians.

The Governor’s proposal is a response to legislative leaders’ drive to give even more tax breaks to profitable companies and wealthy individuals. The corporate income tax rate is scheduled to be eliminated entirely by 2030, and the personal income tax rate will reduce to 3.99 percent by 2027.

This current path on income taxes would be a significant blow to the key principles of a sound tax system — it will reduce the public dollars available for public goods by $8.7 billion when in full effect, and the corporate income tax alone would give 69 percent of the total income tax cut to the richest 20 percent of North Carolinians.

Here are three topline points about the Governor’s tax proposal.

1. The combined changes to corporate and personal income tax rate keeps $291 million in General Fund in the current biennium to support teacher pay, mental health care, and remediation of toxins in the environment during the biennium, instead of sending those funds into mostly the bank accounts of rich people and corporations. By 2030, it will protect $1.7 billion, an amount roughly equivalent to what is required to fund years 2 and 3 of the Leandro plan to deliver a sound, basic education for every child and fund the base budget for natural and economic resources.

2. Under the Governor’s proposal for the personal income tax, the richest 20 percent would receive 54 percent of the total tax cuts, compared to under current law when income tax cuts take full effect, where the richest 20 percent would receive 68 percent of the total tax cuts. The Governor’s proposal provides a good reminder about the distribution of income in North Carolina: 80 percent of North Carolinians have incomes below $127,000.

3. Under the Governor’s personal income tax plan, the richest 1 percent of North Carolinians, whose income is above $630,000, would receive a tax cut that is 137 times that received by the poorest 20 percent. That may seem like a lot, but current law would have the richest 1 percent of North Carolinians receive a tax cut that is 922 times that received by the poorest 20 percent.  When we look at the tax change as a share of income, we see that the state’s current tax law would give a disproportionate tax break to the wealthiest North Carolinians.

The Governor’s tax plan is a step in the right direction, but we should be clear that North Carolina will not be able to build thriving communities that deliver well-being to all without a bolder shift in our tax policy — one that recognizes when corporations and the very wealthy pay what they owe, we can have what we need to deliver a higher quality of life to us all.