How will you vote on new tax proposals?

The North Carolina General Assembly has been busy debating some new ideas that we will asked to vote on.  Anong them are two proposals involving taxes. One would add to the State Constitution a limit on the state personal income tax rate.  The rate would be capped at 3.5%.  A second proposed constitutional amendment would place a limit on how much property taxes could rise after a property revaluation.  If approved by voters, in both cases the new limits could not be changed by future legislatures.  It would take approval of new Constitutional amendments to remove the limitations.

The purpose of today’s column is not to take a position on the two proposals, and certainly not to recommend how you should vote.  Instead, in keeping with the “You Decide” tradition, I have strived to assemble both pro and con information about the proposals and then let “you decide” your own conclusion.

The personal income tax in North Carolina is paid by households.  It is distinct from the State corporate income tax paid by corporations. For much of the 20^th century the personal income tax rate had inched up, meaning households paid more on each dollar they earned.  But starting in the early 2000s, the General Assembly began to move in the opposite direction by gradually lowering rates.  In 2026, the personal income tax rate is $3.99%, and leadership in the General Assembly want to continue lowering the rate.  If passed, the proposed Constitutional amendment would require the rate could never go above 3.5%, but it could be lower.

Supporters of the amendment have various reasons for backing it.  Some want to limit how much money is collected by the personal income tax because they want to limit the size of State government.  Others want to shift tax collections away from the personal income tax to other forms of taxation, such as the corporate income tax and sales tax.  They argue corporations have greater ability than households to pay taxes, and although the sales tax is paid by households, households have some degree of control over the amount because they control their spending.

A third reason is based on an idea called “supply side economics.”  Supporters argue lower tax rates can motivate more people and businesses to migrate to North Carolina, and also to cause households to work more because they keep more of what they earn.  Both impacts could limit the reduction in tax revenues that come with a lower tax rate, or even could cause tax revenues to increase.

Arguments against capping the tax rate revolve around flexibility and fairness in raising State public revenues. Some worry that during economic downturns a cap on the personal income tax rate could restrict the State from obtaining  enough revenue to continue its funding needs, with one example being keeping public schools functioning. Also, if the cap causes a shift to more revenue from the sales tax, this action could put a greater burden on lower-income households buying necessities.

The move to use a constitutional amendment to limit property tax increases comes from an obvious issue.  Property values in the State have been rising much faster than income – in some cases, twice as fast.   This means potential large increases in property tax payments by owners, often much greater than how much their income has risen.  Sometimes owners may be forced to sell their property because they can’t afford higher the tax payments. 

Therefore, supporters use his situation as the reason for a constitutional amendment that would allow the General Assembly to set a limit on property tax increases. They also argue continued ownership of property, including homes, contributes to thriving neighborhoods.

Opponents have two concerns.  First is the recognition that property taxes are a major source of public revenues for local governments, including counties and municipalities. A worry is that a limit might not allow for sufficient revenues to meet local needs, especially when localities are rapidly growing.   For example, counties pay for many local employees and services.  In particular, counties help fund public school construction and operation.

Opponents also point out that local governments can adjust property tax rates to make property tax increases more affordable.  Also, with this adjustment being done at the local level, it can be fine-tuned to local situations, unlike what would happen with a constitutional amendment that applied the same restrictions to all localities.

In conclusion, North Carolinians will likely be faced with two important decisions about taxes this year.  Hopefully, the information in this column will help you with this very big “you decide” situation.

Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.