North Carolina Senate leaders continue to march our state down the path to a zero income tax. That goal was set by powerful outside interests who wanted North Carolina to follow their plan to establish a “tax free South.” It is a goal without purpose other than to eliminate the programs and services that have connected more people and places to opportunity over the years. It is not an economic strategy that works for our state or any other.
Unfortunately, Senate leaders have latched onto the idea that income tax cuts can solve all that ails us economically.
Rural economic opportunity lagging? Cut taxes for profitable corporations.
Too few jobs for those who want to work? Cut taxes for the state’s wealthiest taxpayers.
An entire region of the state devastated by a Hurricane even as it contends with decades of exclusion? Cut taxes.
The simplicity of such an approach may be superficially appealing, but income tax cuts aren’t a real solution. The growing income inequality that plagues North Carolina is not addressed by income tax cuts that primarily benefit the wealthy. The history of exclusion in our state that has kept entire communities from connecting to economic opportunity and building assets is actually made worse by income tax cuts.
The latest development in the Senate’s push for income tax cuts is a recently released proposal to reduce state revenue by an additional $1 billion. Fully half of the benefits of the personal income tax cuts in this proposal will accrue to the state’s wealthiest taxpayers. Meanwhile, large corporations would receive another tax cut on top of the $500 million tax break that went into effect this year.
Added to the tax cuts enacted since 2013, the additional $1 billion in revenue loss will result in North Carolina public services and structures having just 85 cents for every dollar they had before the tax-cutting began. Even as the state’s population has grown and costs have gone up.
The result of all this cutting is almost certain to be the underfunding of needed public services in communities across the state such as classrooms for our children, early learning opportunities to prepare kids for success in school and retraining programs that prepare workers for industries that need certain skills in their workforce.
The only other tool is to shift the tax load onto low- and middle-income taxpayers through increased sales and property taxes. As a practical matter, we can expect the cuts to services and public institutions to come first. Another tax shift may take time.
It’s especially disturbing that Senate leaders also propose to alter the state Constitution to lock in their approach to taxation. Under a proposed constitutional amendment that’s already passed the Senate, the state income tax would be permanently capped at 5.5%. This proposal represents a flawed approach that would make it difficult each year in the future to meet the needs of a growing state seeking to stay relevant on the national and global stages.
And, of course, the proposed constitutional cap won’t guarantee that overall taxes won’t go up either since other levies, like sales and property taxes, won’t be capped. What such a change will do is make it much more difficult to ensure that the wealthy and profitable corporations contribute their fair share as their incomes and profits continue to grow faster than the paychecks of everyday North Carolinians.
The bottom line: Whatever the near-term explanations of the politicians and special interests behind it, the endgame of this experiment is clear. North Carolina Senate leaders aim to completely eliminate income taxes in North Carolina. We should no longer be surprised every time they attempt to ratchet down the rate to get further along the path to that goal.
We should, however, be quite clear and very public in proclaiming our opposition to such a scheme and what it means for the future for our state. North Carolinians need to know that it won’t address our long-neglected economic challenges and it won’t position us for success.
Alexandra Sirota is the Director of the N.C. Budget and Tax Center.