State legislators opened their 2015 session saying they want to ease the tax burden on “regular folks.”
That will be a turnaround. “Regular folks” — those who earn moderate incomes or less — pay a larger share of their incomes in state and local taxes than do the very wealthy in North Carolina.
The Institute on Taxation and Economic Policy issued a 50-state report last week with disturbing news: All across the country, state and local tax policy is skewed in favor of people who already have the most money. North Carolina is about average, but recent changes will make it worse.
Low- and middle-income earners pay about 9 percent of what they make in state and local taxes in North Carolina. Those in the top 1 percent pay about 5 percent.
The state income tax is still slightly progressive. The lowest 20 percent of earners pay less than 1 percent of their incomes. The middle quintile pays an average of 3.3 percent. The top 1 percent pay 4.4 percent.
Recent tax “reform” in North Carolina has lowered and flattened income-tax rates, with the top rate dropping the most. The legislature is shifting more of the tax burden to sales taxes, which are terribly regressive. The lowest earners pay nearly 6 percent of their incomes, on average, in sales and use taxes. The top 1 percent pay less than 1 percent of their incomes.
Some North Carolina policy makers look with envy at Texas and Florida, which have no personal income tax. That’s good for the wealthy, but Texas and Florida have the widest tax disparities in the country: The poor pay a very heavy share of their incomes in taxes, and the very wealthy pay little.
North Carolina should try to narrow its disparities, not make them worse.
Pressure from Raleigh on local governments also may contribute to increasing inequities. As state tax revenues decrease because of income-tax cuts, local governments are expected to pay more of the cost of education and basic services. They have few choices except to add to the sales tax, if local voters agree, or the property tax, which also is somewhat regressive.
The legislature also eliminated the business privilege license tax, which netted millions of dollars for larger cities, such as Greensboro. Absent another option to raise revenue, they likely will go to the property tax.
It was good to hear legislators express concern for “regular folks,” but they have to show by their actions that they really do care. Policy changes so far show the legislature cares about reducing the tax burden on the wealthy and profitable corporations. While many middle-income taxpayers have gotten a small break, some actually end up paying more if particular sales taxes hit them hard. This study also cited elimination of the earned income tax credit as a measure that hurts the poor.
There is an economic recovery underway, and North Carolina has benefited from moderate job growth. But “regular folks” still don’t feel very prosperous. The state isn’t doing much to help, and in some ways is holding them back.