Personal income tax cuts overwhelmingly go to the rich in NC

In 2013, the NC legislature started cutting taxes (mostly for big corporations and wealthy people). Most years since have NC lawmakers continue to divert public funds from things like schools, childcare, broadband, water quality, and public safety, to the pockets of out-of-state corporations and the wealthy few. These cuts also put more of the burden on middle- and low-income taxpayers while letting their richer neighbors off the hook. This post is part of a series bringing light to how tax cuts have failed to deliver promised benefits while undermining our ability to pay for things North Carolinians need.

As our state budget season gets fully underway, legislative budget writers appear to be sticking with massive personal income tax cuts for the richest North Carolinians instead of investing in our shared future.

Cuts to the personal income tax rates alone are already diverting almost $12 billion a year from our schools, hospitals, roads, and communities, which would likely surpass $14 billion when all of the currently scheduled rate cuts have taken effect.

So when we’re rushing to pick up our kids because there was no bus driver available, or shelling out to pay for a pothole-busted tire, or watching our lives slip away in an interminable DMV waiting line, it’s worth examining who’s benefitting and who’s getting the short end of the stick.

One thing’s for sure: The wealthiest taxpayers in North Carolina have done very well for themselves over the past decade. A progressive state income tax that required the most fortunate to pay a more substantial share of their income was replaced with an increasingly lower flat rate has delivered huge benefits for folks on the top of the economic heap. For taxpayers in the richest 1% with incomes over $634,000 in 2023, the fully phased in personal income tax cuts would cut their tax bill by an average of $47,000 a year. That combines the over $37,000 in personal income tax cuts that have already taken effect and an additional $9,600 scheduled to phase in over the next few years.

Compared to the haul raked in by North Carolina’s wealthiest taxpayers, the cuts going to most everyone else look pretty paltry.

The average person in the worst-paid one-fifth of North Carolina taxpayers would only see their taxes go down by around $360 a year when all of the personal income tax cuts already passed have phased in, and taxpayers with incomes between $77,000 and $127,000 a year (the 4th quintile by income) would get an average tax cut of just over $2,500.

The gap is even more striking when you put it in the context of human lifetimes.

A decently well-off family being paid between $77,000 and $127,000 a year could bring a newborn baby home from the hospital, nurture it through pre-school, elementary, middle, and high schools and watch their now 18-year-old young adult leave for college before they would see the same amount of tax reduction that a family in the richest 1% would take home in just one year.

That’s bad enough, but it’s nothing compared to how tax cuts preserve intergenerational differences in wealth between the top and bottom of the income spectrum. A family being paid under $22,000 would have to wait more than 6 generations (130 years) to equal what a taxpayer in the richest 1% would get in one year from personal income tax cuts passed in the past decade.

Now more than a decade into this tax regime, the consequences of underfunding our schools, roads, and community infrastructure are getting harder and harder to ignore. Certain lawmakers have undermined vital services that we all rely on to divert funds into the bank accounts of wealthy people, a choice that creates more harm the longer our state continues down the same path.