How tax cuts in North Carolina undercut North Carolina’s middle class

How tax cuts in North Carolina undercut North Carolina’s middle class

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It appears that our state’s final days of debate over the state budget will have failed to engage with the most relevant data point for North Carolina’s middle class:  The typical worker is paid less each hour today than when the Great Recession began.

The national recovery that has grown incomes has only just begun to grow wages in our state, and that growth is still too little to ensure that North Carolinians can make ends meet.  It is also clear that a greater number of North Carolinians are struggling to stay above the poverty line despite working (1 in three workers in our state earn poverty wages), and nearly half make less than what it takes to cover a household budget.

Our state’s economic recovery has been modest at best, and the tax cuts have not generated greater opportunity or higher incomes for everyday North Carolinians.  Instead, the income tax cuts that have primarily benefited the wealthy have meant that North Carolina is unable to meet the needs of a growing state in a transforming landscape of industries. The income tax cuts have been paid for by expanding the sales tax base and keeping our investments in children’s education, infrastructure and health below pre-Recession levels.

The leaders in the General Assembly fail to acknowledge time and again that North Carolina is struggling to retain quality teachers in the classroom, can’t provide every child with a textbook, and can’t protect children from abuse or then ensure their safety in foster care.  We are unable to protect our air and water and cannot address the needs of the families, businesses and farmers in a region devastated by Hurricane Matthew.

Our state government’s ability to serve the people and promote a stronger future for North Carolina is hampered because some policymakers became fixated on lowering the income tax rate.  The income tax cuts since 2013 have overwhelmingly benefited the top 1 percent of taxpayers — the few over the many.  More than three-fourths of the net tax cuts over that period have gone to the top 1 percent. North Carolina’s adoption of a flat rate rather than a graduated rate means that, as income concentrates at the top, it is taxed at the same rate as those with poverty-level income.  The poorest taxpayers in our state pay more, and the working poor who previously received a state Earned Income Tax Credit do not because policymakers chose to eliminate it despite the evidence of its wide-ranging benefits.

To be sure, the House and Senate have recognized the problems with giving tax cuts to the well-off without addressing the loss of various credits, deductions and increases in sales tax that were used to offset the revenue lost. Their solution of raising the standard deduction, however, is a blunt tool that benefits the wealthy as well as the middle class by exempting a taxpayer’s income from tax, regardless of total income. This isn’t a policy targeted to the middle class, and it is a costly way to save face with voters who realize what they have lost.

For many North Carolinians, the loss isn’t just personal.  Even for those taxpayers who did receive a couple hundred dollars in income tax cuts, the loss is real.  After all, the middle class has always been a symbol of not just economic security but a quality of life and thriving community. It is as much about what we have as individuals as it is about our communities and what we can build together.

It is this very collective commitment we have made and continue to seek that has allowed North Carolina to compete on a global stage and stake out a place in the South where education, innovation and inclusion can be pursued.

Our state continues to benefit from the investments that were made in past decades, but under the current direction the potholes are increasingly hard to navigate around.  Our public university system continues to exist but has lost faculty, struggled to maintain the level of research and development of years past, and failed to keep the university affordable to many first-generation college students seeking a world-class education. Our state parks celebrated their 100-year anniversary last year and continue to attract visitors who admire the long leaf pine, the sand dunes of the coast and the peaks of the Appalachian range. Meanwhile, in the shadows of our landmarks, many rural residents struggle with access to safe well water, and many communities aren’t able to build the public spaces that support healthy living.

The tax cuts our state have enacted since 2013 will continue to erode these foundational investments and many others year over year, until future generations have no foundation to stand on, no pathway to walk to a higher quality of life.

In the meantime, we have very little to show for it on the economic side.  We continue to have persistently high poverty rates and too few jobs for our growing population. North Carolina’s economy struggles along with the rest of the country and is underperforming our neighboring states on key measures of productivity gains, joblessness and wage growth.  And we have missed the opportunity to address growing inequality and economic exclusion that hits communities of color especially hard and that will continue to hold our entire state back from an economic performance we can be proud of.

Let’s not continue down the path to zero income tax.  Let’s take the high road to an economy that works for all.