MEMO TO REPORTERS - HB 998 is a tax shift: Millionaires will benefit while low-and middle income will pay

RALEIGH (June 7, 2013) — The House today gave tentative approval to a tax plan that will shift the tax load to low- and middle-income taxpayers, give the wealthiest taxpayers a tax cut and put our public investments at risk. During today’s floor debate of HB 998, the House tax reform bill, there seemed to be significant confusion over whether or not the proposal would result in tax increases for North Carolina taxpayers.

It’s important to set the record straight—the bottom 95% of taxpayers in North Carolina will on average see their taxes increase under this plan.  All taxpayers will pay more in sales tax and not all taxpayers will receive an income tax cut. Many more will receive an income tax cut too small to offset the sales tax expansion.

The Budget & Tax Center wanted to provide key points about our analysis.

  • The bottom 95% of taxpayers will pay more, on average, under this plan.  The Budget & Tax Center uses a model—called a final tax incidence analysis—that is unquestionably the most comprehensive method for determining how tax changes affect taxpayers at every income level. The reality is that even taxpayers at similar income levels are affected by tax changes in very different ways, depending on their age, the number of children they have, and a whole bunch of other individual circumstances. Our method takes this into account and presents a more accurate picture of how the whole population is affected.

    The "representative taxpayer" approach used by Fiscal Research does not. It looks at hypothetical families at certain income levels to describe what might happen to a taxpayer in that specific situation.  The bottom line is that when you look at the impact of the House plan on real-life taxpayers in our state, on average, the vast majority of them will pay more. The only income group getting a tax cut on average is the very wealthiest North Carolinians.

  • The adoption of a flat and lower income tax rate along with other income tax changes delivers the greatest share of the income tax cut to the top 1% of taxpayers.  More than a third (39 percent) of the income tax cut goes to taxpayers with incomes of nearly one million dollars.  And not all taxpayers would get a cut from the income tax either: more than one-fourth (27 percent) of taxpayers would receive an income tax hike under the House plan.

    Even with the limitations of the representative taxpayer approach, it is clear that the legislation will benefit the wealthiest taxpayers the most. A married taxpayer filing jointly with two children with $20,000 would see a tax cut of $2.00 (.01% of their income), the same tax filer type with income of $4 million would see a cut of $62,181.00 (2% of their income).

  • The so-called “protections” for low- and middle-income taxpayers are ineffective and poorly targeted at those who are hurt by this tax plan.  It will fail to shield those taxpayers from changing sales tax to more goods and services and keeping the sales tax rate the same.

Taking into account the loss of the state EITC, the experience of taxpayers next year will an even greater increase because the most effective tool to address the sales tax increase will be gone. The House tax plan combined with the end of the state's Earned Income Tax Credit will raise taxes for taxpayers with an average income of $12,000 by 0.7 percent, while cutting taxes for taxpayers with an average income of $940,000 by -1 percent. 

As always, we welcome the opportunity to talk with reporters about our research and analysis of tax policy.

FOR MORE INFORMATION, CONTACT: Alexandra Forter Sirota,, 919.861.1468; Jeff Shaw,, 503.551.3615 (cell).