Tax changes in NC Senate budget plan benefit richest, worsen racial inequities

The NC Senate tax plan will double down on the path to zero income tax — keeping in place the elimination of the corporate income tax and reducing the personal income tax to 2.49 percent after 2029 — to benefit the very wealthy and profitable corporations.

When in full effect, the personal income tax cuts alone will reduce public funds by $7.6 billion annually, compared to our current 4.75 percent tax rate.

This is more than the total annual state appropriation for Health and Human Services proposed in the Senate budget.

The funds that the Senate proposes to give away in tax cuts each year could ensure that North Carolina meets every child’s constitutional right to a sound, basic education by fully funding the annual investments in public education costed-out in the Leandro Plan, and provide teachers with meaningful salary increases. There would be funds left over to double the number of children who receive child-care assistance, and to significantly boost pay for early childhood educators and increase access to childcare in every North Carolina county.

For such a devastating blow to the state’s capacity to fund the people’s priorities, it is even more concerning that the benefits of the tax break go overwhelmingly to the richest 20 percent of North Carolinians. Two-thirds of the total tax cut will go to the richest people in our state, while the bottom 80 percent will get just one-third.

Taking an even deeper look, this personal income tax rate reduction would, on average, give households in the richest 1 percent a tax cut 40 times greater than what the average middle-income North Carolinians would receive.

As a share of their income, the personal income tax cut delivers the greatest benefit to millionaires and does little to reach the poorest North Carolinians. This is because our state’s high standard deduction and low flat income tax rate combine to benefit people with higher incomes while ignoring the sales and excise taxes that represent a greater share of the income of North Carolinians with middle and low incomes.

The reality is that 1 out of every 5 North Carolinians will receive no tax cut at all from the rate reductions in the Senate tax plan.

Systemic racism in policymaking has created racial disparities in wealth and income in North Carolina, and slashing the income tax rate doubles down on a state tax system that worsens inequities. White households make up 64 percent of tax filers in our state, but would get 76 percent of benefits of the Senate tax plan. Black households on the other hand are 23 percent of filers, but would receive only 14 percent of the total tax cut, while Latino households make up 7 percent of filers and would see just 4 percent of the tax cut.

The Senate tax plan includes other financing changes that suggest a shift to reliance on fees, a generally more regressive form of revenue collection — which asks for more from those with the least — that could grow over time as revenue losses from income taxes mount.

When the Senate tax plan is stacked up against the House tax plan, it is clear that tax decisions have become a major decision point for the conference committee that will impact every area of the budget and the ability of future budgets to meet the people’s priorities.

While the strongest path to a better future for NC families and communities would stop income tax cuts altogether, the Senate plan would be fiscally irresponsible to put into effect — especially over such a long timeline.

The use of scheduled rate reductions into the next decade is an increasingly common practice by NC budget writers, one that is uniquely irresponsible because scheduled rate reductions obscure the full impact of the loss to public funds.

There are alternatives that should be on the table for both the Senate and House proposals.  The Governor has proposed halting rate cuts for those with incomes over $200,000 for North Carolinians who are married and filing jointly (or $100,000 for single filers). Even better would be to stop the scheduled income tax cuts altogether and drive our collective resources toward the public good to shore up people and communities as the economy slows and as we work to repair the systemic harms that were more fully revealed during the pandemic.

Failure to account for the importance of good schools and affordable childcare in every community, health care and health providers accessible to all families, and safe air and water is a failure to fulfill the responsibility entrusted to our leaders by the people. That responsibility is to consider the good of the many, not the wealth of the few, and enact policies that build a better future for us all.