The Road to Nowhere Good for North Carolina

Tax changes passed in the 2016 legislative session reduced the income tax rate and increased reliance on the sales tax. This continued flawed approach to taxation that policymakers have followed since 2013 has proven disastrous to other states’ fiscal and economic outlook. Such an approach delivers the greatest reduction in the tax load to the wealthy while losing opportunities to make smart investments that can improve the quality of life for families and strengthen the vitality of communities. As such, it does not address North Carolina’s economic challenges, but instead undercuts the foundations of what have proven to be economy-boosting public investments.

Changes to the state’s tax code—primarily raising the standard deduction from $15,500 to $17,500 for married couples filing jointly by 2017 and expanding the sales tax base to more services—build onto costly tax cuts passed since 2013 that have primarily benefited the top 1 percent of income earners while increasing the tax load on the poorest taxpayers in the state.

While this year’s changes may appear to be modest compared to more complex tax policy changes enacted in the years since 2013, it nevertheless represents one more step toward eliminating the state income tax. North Carolina General Assembly leaders have made clear that this is their end goal, which should be of great concern. Each step toward zero income tax further skews the state’s upside-down tax system and further challenges our ability to make public investments that support thriving communities across the state.

This BTC Brief details how the tax plan fails to meet North Carolina’s high standards of fiscal responsibility and will fail to put the state in a competitive position with our neighbors or the rest of the nation.