Constitutional amendment to cap income tax will have disproportional impact on rural communities

Prosperity Watch (Issue 94, No 1)

On Tuesday, voters in North Carolina will have the opportunity to decide whether or not to lower the state’s income tax via an amendment to the state’s constitution from 10 percent to 7 percent.

A Budget & Tax Center report details the cost of this amendment, including the loss of $2.4 billion annually and the limits placed on raising revenue from high income taxpayers. The report also finds that rural communities will pay a higher cost than other areas of the state if the ballot measure becomes law.

A limit on state income tax will likely reduce intergovernmental transfers or dollars that go to local governments to support public services like schools, social services, public safety and infrastructure.

Researchers found that in 43 North Carolina counties, 15 percent or more of the counties’ annual revenue comes directly from the state. They also found that all 43 of those counties were considered rural. In addition to having to raise property taxes to keep up, these 43 counties also experience poverty at a rate nearly 30 percent higher than the rest of the state. This tax cap will force rural communities to ask even more from low-income people in order to support their local government.

In order to continue to fund public safety, public health, parks and recreation, and child well-being, local governments will have to find money elsewhere, most likely through raising sales and property taxes. In a review of states with tax and spending limits, many states have been found to shift the source of revenue to skirt limits thus resulting in taxes increasing overall for taxpayers. Already since 2013, 74 counties have raised property taxes.