The almost forgotten regressive tax shift

The almost forgotten regressive tax shift

- in Fitzsimon File


There’s no shortage of buzz in the political world in Raleigh these days. The outrage continues over the massive salary increases given to two 24-year-old HHS employees who worked on Governor McCrory’s campaign.

The voter suppression legislation that McCrory recently signed has prompted biting editorials inside and outside the state and sparked citizen protests from Burnsville to Manteo.

Schools have opened with larger classes, fewer teacher assistants and woefully inadequate funding for textbooks and supplies.

And almost every day brings another discovery about the rollbacks in protections for workers and the environment included in the sweeping regulatory reform bill that McCrory also signed into law last week—which may end up being the most far–reaching and least discussed legislation passed by lawmakers this summer.

Then there’s all the speculation about the veto override session scheduled for next week where House and Senate leaders.

With all that going on, it’s easy to forget that the General Assembly also passed and Governor McCrory signed a massive tax shift into law this summer, a plan that will give huge breaks to the wealthy and corporations while forcing the bottom 80 percent of taxpayers in the state to pay more on average.

That’s the conclusion of a new analysis on the final tax plan by the N.C. Budget & Tax Center.

The report shows that two-thirds of the tax cut goes to the wealthiest one percent of people in the state who have average incomes of $940,000 a year. The great tax shift will cost the state $650 million a year when fully implemented, a long way from the revenue neutrality that Governor McCrory promised.

And a tax shift it is, no matter how much McCrory and legislative leaders claim it was a reform package.

It didn’t reform taxes much at all, it simply cut them for out of state corporations and rich individuals. Many small businesses will see actually see a tax hike.

The report points out that there are more than 300 tax breaks or loopholes in the tax code. The final tax plan only addressed 47 of them, not nearly enough to pay for the tax cuts given to the folks at the top.

Most troubling was the decision to allow the state Earned Income Tax Credit to expire. More than 900,000 low-wage workers received the credit in 2011 including more than 60,000 military families.

The BTC report highlights three major principles of true tax reform—fairness, adequacy, and simplicity.

It is clearly not fair, as the folks with lower incomes are paying more while the wealthy and out of state corporations pay less. And no one can argue that it’s adequate as drains the treasury of hundreds of millions of dollars that could have been invested in public schools or human services.

And ignoring most of the glaring loopholes clearly means it fails the simplicity test.

That only leaves the claim by the plan’s supporters that it will be a boon for economic development by making North Carolina more competitive with other states in attracting new jobs.

But as the report makes clear, there’s little evidence of that. State and local taxes only account for two percent of business costs.

The Center on Budget and Policy Priorities reviewed the academic literature on the topic and found that 18 of 20 research articles concluded that cutting state and local taxes have no effect on job growth or economic performance.

That’s the same message lawmakers heard from senior North Carolina economists earlier this year, including one who has been an adjunct scholar the John Locke Foundation.

So it’s not reform, it won’t create jobs, it makes it harder to fund education and gives wealthy people more money and low and moderate income people less.

Quite a plan they came up with. Call it a tax shift, call it a tax cut for the wealthy, call it a giveaway to huge out of state corporations. That all applies.

But it is not tax reform and it is not an effective economic development plan, no matter how many times they claim otherwise.

About the author

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina.