Jan. 1: Tax cuts for the rich in NC — still no state budget

The New Year will bring little certainty to everyday North Carolinians.  State legislators have failed to use the policy tools available to them to address rising costs for the basics, from food to child-care to housing.

Instead of passing a state budget this year, state legislative leaders couldn’t agree to put people first. They are now planning to work on a comprehensive state budget only after another round of tax cuts for the wealthy and profitable corporations goes into effect — leaving child-care centers on the brink of closure, health care premiums rising, and providers unpaid.

State legislators’ inaction on the affordability challenges immediately facing families  means that, in the new year, the wealthiest and profitable corporations will get another tax cut and North Carolina will lose critical capacity to respond to people’s priorities.

Absent further action in 2025, income tax rates will drop again on Jan. 1 — to 3.99 percent on individual income and 2 percent on corporate profits.  These tax cuts were scheduled years ago, before inflation surged, corporate profiteering accelerated, and federal cuts and costs shifted to the states. It is past time to revisit them.

North Carolina’s revenue projections already show shortfalls beginning in the next fiscal year. The federal government has pushed new costs onto states and cut back on investments that have helped keep people housed, responded to disasters, and support small business start-ups and expansion.  These cuts were made to extend and build upon tax cuts passed by the first Trump administration in the 2017 Tax Cuts and Jobs Act.

In total, state and federal tax cuts since 2018 for the richest 1 percent of North Carolinians alone have been enormous. The richest 1 percent in North Carolina — whose average incomes approach $2 million — will pay $4.9 billion less in taxes in 2026 than they would have under tax policies in place before cuts enacted by Congress and the North Carolina General Assembly since 2018.[1]

That $4.9 billion is enough to fund the state’s contribution to the UNC system each year.  Or it’s nearly enough to fund the entire state’s contribution to the Medicaid program.

North Carolinians understand that our state’s economy depends on people being able to stay connected to good jobs — supported by affordable child care and transportation —while paying for the rising cost of food and health care and accessing quality public education and training. That’s why poll after poll shows they want to see these investments prioritized ahead of more tax cuts.

There is a commonsense action that state policymakers can take as the new year begins: increase the tax rate on the windfall income that the ultrarich will receive from federal and state tax cuts to cover the new costs that North Carolina must absorb  due to federal cuts to finance the tax cuts. Doing so will build a North Carolina where everyone can be well — and do well.

Since 2018, too many federal & state policymakers have chosen the wealthy

North Carolina’s legislative leaders have been on a tax-cutting spree since 2014. Before that year, the state had a progressive individual income tax, with a higher rate (7.75 percent) on higher-income households. In 2014, lawmakers replaced that system with a flat income tax rate of 5.8 percent for all income levels, and began to repeatedly lower rates on personal income and corporate profits.

Those cuts to income tax rates accelerated in 2018, when legislative leadership put a state Constitutional amendment on the ballot that locked in tax cuts by changing our state’s Constitution that capped the income tax rate at 7 percent.  While the “income tax cap” has been litigated due to the racially gerrymandered NC General Assembly that approved the measure for the ballot, it effectively made clear that legislative leaders would put their tax cuts for the wealthy and profitable corporations ahead of any future need.

Now, those future needs have arrived. Lawmakers have allowed unpaid bills to pile up, creating a host of unnecessary additional costs — from unhealthy buildings where children go to learn to lost time waiting for the delivery of basic government services.

North Carolina’s upside-down approach to budgeting has coincided with federal policies that deepened inequities. The 2018 implementation of the Tax Cuts and Jobs Act, passed during the first Trump administration, delivered major additional tax cuts to the wealthy and profitable corporations. Those federal tax cuts were extended, and expanded, through 2025’s HR1-the “One Big Beautiful Bill,” paid for with cuts to health care and food assistance.

With these cuts, the federal government is stepping away from their historic commitments to programs that keep food on the table and help people get the care they need, leaving states scrambling to fill the gaps. For North Carolina, this means rising costs at the same time that state tax cuts slash our public revenue.

The combined effect of federal and state tax cuts is jaw-dropping. Compared to what was in place in 2018, 43 percent of cuts go to the richest 5 percent of North Carolinians. Meanwhile, the poorest 20 percent of North Carolinians actually see their taxes increase, largely due to new limits on Affordable Care Act credits and the repeal of green energy provisions in the so-called “One Big Beautiful Bill.”

Tax cuts cost North Carolina progress

These tax cuts are slowing North Carolina’s progress toward greater affordability and well-being for families across the state.

State legislative leaders — alongside North Carolina’s Congressional delegation —have put the interests of the wealthy and profitable corporations ahead of many of the things we can do through our state budget to make life easier — like making child care available and accessible; supporting food systems to connect with schools, food banks and farmers markets; and building infrastructure that connects communities to the world and to jobs.

This isn’t hyperbole. It is fact.

Consider the total annual cost of federal and state tax cuts to the very rich in North Carolina since 2018, compared with the state budget items that could fund services and programs for the vast majority of North Carolinians.

• The richest 1 percent receive $4.9 billion in tax cuts in a year — equivalent to the state’s entire funding of the UNC System. Students enrolled at some UNC campuses are already feeling the consequences of the state’s underinvestment in UNC system campuses after votes this fall to increase in-state tuition and fees.
• The richest 5 percent receive $9.7 billion in tax cuts in a year — more than the state’s entire investment in Health & Human Services programs that provide health care, food assistance, social services, child care, adult day care services and more to North Carolinians. This fall, health-care providers saw disruption to critical revenue when the state failed to fully fund reimbursement for Medicaid services, an early and concerning sign of the ways that additional federal funding restrictions will decrease access to care and supports for peoples well-being, particularly in rural areas of the state.
• The richest 20 percent receive $15.8 billion in tax cuts in a year — more than the state’s entire funding of the K-12 public education system and community colleges combined.

 

State taxation of windfalls for the wealthy can protect and propel NC forward

The tax breaks that are making big corporations and the ultra-rich richer are also making the rest of us sicker, less connected to opportunity, and poorer.

Fortunately, North Carolina has the tax tools to change course.

We can come together to demand that the richest North Carolinians settle up in 2026 by paying a higher rate on their incomes over at least $1 million — helping offset years  of combined federal and state tax breaks that have flowed to the top.

This step wouldn’t undo the damage of years of tax cuts on its own, but it would move NC forward by protecting the well-being of us all— in a state that can only truly thrive if we come together and commit to delivering a basic standard of living and freedom from hardship.

[1] Federal tax cuts since 2018 include various tax changes from the 2017 Tax Cuts and Jobs Act as well as from  2025’s HR1 (the One Big Beautiful Bill Act). State tax cuts since 2018 include reducing the personal income tax rate from 5.499 percent in 2018 to 3.99 percent in 2026, and reducing the corporate income tax rate from 3 percent in 2018 to 2 percent in 2026.