MEDIA RELEASE: North Carolina’s tax swap gives biggest breaks to the wealthiest residents

Sales tax expansion left struggling North Carolinians paying higher share of income in state, local taxes and fewer state dollars to invest in thriving communities, says a new report

RALEIGH (April 11, 2016) — Due to lawmakers’ efforts to rely more heavily on the state sales tax and less on the income tax to support public services and our state’s economy, the state tax code is asking more from taxpayers with the least income and still bringing in less than is needed to support communities.

Changes made to the state’s tax system in 2013 have not only most benefited the wealthy and profitable corporations, but also greatly reduced resources for public investments, according to a new report from the Budget & Tax Center, a project of the North Carolina Justice Center. This was only further exacerbated last year by the enactment of another round of state income tax cuts and increase in the number of goods and services subject to sales tax.

“Expanding the range of purchases on which the sales tax is levied is not inherently bad policy,” said Cedric Johnson, a public policy analyst with the Budget & Tax Center and author of the report. “But doing so to pay for income tax cuts that primarily benefit the wealthy and profitable corporations is the wrong approach for our state.”

Since 2013, policymakers have sought to increase North Carolina’s reliance on sales tax and reduce collections from personal and corporate income taxes by broadening the sales tax to include services that didn’t used to be taxed and reducing income tax rates. But if a sales tax expansion isn’t paired with measures that promote equity in the state’s tax system – such as reinstating the state Earned Income Tax Credit (EITC), which lawmakers let expire at the end of 2013 – the share of income paid in state and local taxes goes up for North Carolinians struggling to make ends meet and down for the wealthiest. While low-income taxpayers have less to save and use more of their earnings for purchases, the wealthy are able to save or invest a large share of their income, which is not subject to sales tax, the report said.

Prior to the tax changes passed in 2015 the lowest-income taxpayers in North Carolina paid more than seven times more in sales taxes as a share of their income than the highest-income taxpayers. This already wide disparity will likely widen due to further income tax cuts and even more services now subject to the sales tax as a result of the 2015 changes. The approximately $992 million brought in since 2013 from broadening the sales tax pales in comparison to the nearly $2.5 billion in revenue lost from personal and corporate income tax cuts and other tax changes enacted during the same period.

“This Tax Day, our policymakers must address the state’s upside-down tax system and ensure that revenue collections can keep up with growing needs now and in the future,” Johnson said. “Stopping scheduled rate cuts on the income tax side and enacting a state Earned Income Tax Credit should be their first step.”

Read the full report at this link: https://www.ncjustice.org/publications/north-carolinas-tax-swap-gives-biggest-breaks-to-the-wealthiest-undermines-public-investments-for-all/

FOR MORE INFORMATION CONTACT: Cedric Johnson, cedric@ncjustice.org, 919.856.3192; Julia Hawes, julia@ncjustice.org, 919.863.2406.