Income tax limits would deepen racial inequity in NC

No matter who we are or where we live, North Carolinians believe that everyone – Black, brown, and white – should have the opportunity to thrive, support their family, and plan for the future. Our tax policy decisions have the power to level the playing field and fund the public services that help us all succeed – like excellent public education, affordable child care, clean air and water, and more. 

State tax policy is not race neutral — policy choices can advance racial equity or further deepen divides in our state. Historical and current barriers to high-paying jobs, educational opportunities, and wealth building through banking and homeownership mean that Black and Latine families are over-represented among low-income households in North Carolina. White families, in comparison, are over-represented among the wealthiest households in our state.  

Policy choices that are focused mainly on lowering taxes across the board and placing limits on income tax rates make these inequities worse — the benefits go disproportionately to rich, white households and disadvantage Black and Latine households. Prioritizing low tax rates above all else also hurts people with low incomes when our state doesn’t have revenue to invest in the public services that support well-being. 

This November, North Carolinians will vote on a constitutional amendment that would limit the state income tax rate to 3.5 percent both for personal and corporate income taxes, a significant decrease from 7 percent, which was the maximum rate approved by voters in 2018. Significantly, the 7 percent tax cap amendment was placed on the ballot by an illegally gerrymandered legislature and its legitimacy is the subject of ongoing litigation.  

Limiting taxes in the constitution would have a big impact on lawmakers’ ability to put different tax policies in place — ones that raise enough public money to fully fund public education, affordable child care, and more, and that ask wealthy people and profitable corporations to pay what they owe. It wouldn’t change anyone’s taxes in the near term, because personal and corporate income tax rates will both be lower than 3.5 percent in 2027. 

New analysis from the Institute on Taxation and Economic Policy looks at the impacts of a potential income tax cap by race and ethnicity. This compares a hypothetical personal income tax rate of 7 percent to the proposed cap of 3.5 percent.

About 48 percent of the total tax change goes to the richest 20 percent of white taxpayers. More than half of that goes to the richest 5 percent of white taxpayers, who have an average income of about $760,000 per year. As shown in the chart below, the richest white taxpayers are just 4 percent of all taxpayers in North Carolina, but they would get 27 percent of the gains in tax reductions from lower personal incomes taxes. 

While white taxpayers benefit disproportionately from lower income tax rates, Black and Latine taxpayers receive a smaller share of the benefit compared to their representation among all taxpayers in the state. As shown in the chart below; 

• Black taxpayers make up about 24 percent of taxpayers in North Carolina, but only get 12 percent of the benefits of a lower tax cap.  

• Latine taxpayers make up about 9 percent of taxpayers in North Carolina, but only get 6 percent of the benefits.

While income tax limits deepen racial inequities, North Carolina could instead choose to pass tax policies that expand opportunity and racial equity — such as a graduated personal income tax or a refundable child tax credit. Our state is stronger when everyone has the opportunity to thrive, and our tax policy can help make this possible.