According to a new report by three Federal Reserve economists that examines the effect federal and state taxes have on income inequality, NC taxes don’t tip the scales for impoverished state residents. Their study, which looked at data from 1984 to 2011, calculated North Carolina taxes to have a zero percent impact on income inequality, meaning that while the tax code did not exacerbate it, our taxes did not do anything to decrease the gap in wealth either.
That information, however, is poised to change when data starts rolling in for the 2014 tax year. Why?
North Carolina got rid of several key tax boons for low-income families in 2013, such as:
- The North Carolina Sales Tax Holiday. Sales tax holidays are key for families who are looking to get clothing and school supplies. Sales taxes are “regressive,” according to David Wessel of The Wall Street Journal, because “lower income families tend to spend a greater fraction of their income on food and clothing than the rich.” When North Carolina passed a law to eliminate the sales-tax exemption, it made it that much more difficult for working families to make ends meet.
- The North Carolina Earned-Income Tax Credit. Many of us felt the sting of the end of the Earned Income Tax Credit (EITC) at tax time this year. This was one of the key laws that worked to reduce income inequality for working families and women in North Carolina. The federal version of the law was championed by none other than Ronald Reagan, who called it the “best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” Tazra Mitchell writes that “a state EITC can provide a small wage boost to low-income working parents to help them meet their families’ basic needs,” which would help to boost North Carolina’s economy. North Carolina lawmakers chose to let this tax credit expire, once again making it harder for working families to make ends meet.
And while deficit mongers may claim that ending these things gave us a $400 million dollar budget surplus this year, it was, as Thomas Mills puts it, a “budget surplus with a values deficit.” Moreover, the budget surplus came about by raising taxes on small businesses—another area where working families are hit hard.
The tax cut plan in 2013 benefits the top 1 percent of tax payers. It is this minority who receive about a two-thirds share, providing a “windfall to the wealthy” according to Mitchell, who points out that it is men, not women, who are receiving the lion’s share of the tax breaks.
So while we can currently damn North Carolina with faint praise by pointing out that, while our tax law does not reduce income inequality, at least it does not make it worse, the future does not bode well. The next time the Federal Reserve takes a look at state-by-state income inequality, North Carolina will probably got grades. Instead, we may be included with the worst offenders, like Tennessee, Mississippi, and West Virginia, whose state tax laws increase income inequality by over 30 percent.
Melissa Geil is a freelance writer and English teacher. Although originally from New York, she moved to North Carolina the first time for college (go Tar Heels), and now she is back to stay. She enjoys reading, hiking, and gallivanting around the triangle with her family.