In North Carolina, we don’t begin our state-budget conversation by asking what services and investments are essential and then figuring out how much revenue we need to raise. Instead, we see how much revenue our current tax system will bring in and let that determine how much we spend on education, roads, and care of those who are elderly, have disabilities, or are physically or mentally ill.
Occasionally state leaders tweak the tax system (remember the temporary sales tax increase from a few years ago?) but much of the tax code North Carolina uses today is the same as it was when it was first created right after the Great Depression.
This year, state leaders want to make significant changes to the tax code, and they’ve launched a new website to tell you all about it. In a video on nctaxcut.com (nctaxcut.com), Senate leader Phil Berger says their tax plan would lower income tax rates and sales tax rates, but it would apply the sales tax more broadly and include services like haircuts and car repairs. Berger says the plan “will cut more than a billion dollars in taxes and give North Carolina families more money as they struggle to make ends meet.”
Unless, of course, yours is a low-income family.
The website includes a handy calculator with the title, “How much will you save under the Tax Fairness Act?” It asks you to provide your yearly household income, number of dependents, and filing status. You can also include your state tax deductions and your annual spending, or the website can estimate those for you.
So let’s look at a single woman with one child who earns $25,000. The website estimates her deductions at $4,400 and her annual spending at $24,435. And her tax savings – drumroll please – negative $262.
Yup, she would pay $262 more in state taxes under this plan.
How come? It’s hard to know for certain, since the website doesn’t provide any specifics on how these calculations are made. But we do know that earlier this year, the legislature voted to end the Earned Income Tax Credit, which would have certainly lowered the taxes of a low-income working mom.
The proposed changes to the sales tax in the Tax Fairness Act likely contribute this increase as well. As a rule, sales taxes hit low-income families disproportionately hard. That’s because the less income you have, the more likely it is you will spend almost everything you earn – note the nctaxcut.com calculator assumed our single mom would spend all but $565 of her income – and much of what you buy will be subject to sales taxes. So when you calculate how much you pay in sales taxes as a share of your income, the percentage will be much higher than for a wealthy family.
As a rule, wealthy families spend a smaller share of their incomes than low-income families do, so they pay a smaller share in sales taxes. However, they pay more in income taxes, so the proposed income tax cut in the plan would mean a much bigger tax cut for rich people.
So let’s run some more scenarios on the nctaxcut.com calculator.
- Single parent with two kids earning $20,000 a year = $661 increase
- Married couple with three kids earning $40,000 a year = $538 increase
- Single person with no kids earning $80,000 a year = $1,501 tax cut
- Married couple with two kids earning $1,000,000 a year = $53,750 tax cut
- Single person with no kids making $1,000,000 a year = $56,080 tax cut
This plan is a pretty sweet deal if you’re rich. But if yours is one of those families that, as Berger put it, “struggle to make ends meet,” this shifting of the state’s tax load onto your shoulder is going to hurt. Taxes should not be a barrier to families working to achieve economic stability.
Paying taxes is your responsibility as a member of society. It’s how we create a functioning community, take care of each other, and build a better future for generations to come. Taxes are how we invest in the common good.
Which brings us back to Berger’s statement that this tax plan will collect $1 billion less in taxes. How will state leaders deal with such a dramatic reduction in revenue? Berger says, “Simple. We hold the line on spending.” Anyone concerned about our schools, our universities, our mental health system, or our justice system would likely argue that North Carolina has