>>BY TAZRA MITCHELL, POLICY ANALYST AT THE NC BUDGET AND TAX CENTER Fairness is one of the most basic principles of a sound tax system. A fair tax system asks taxpayers to contribute based on their ability to pay and does not exacerbate income inequality by favoring some taxpayers over others. If a fair tax policy is good for economic and moral reasons, as many scholars believe, it is clear that state lawmakers’ recent changes to the tax code are out-of-step with this standard. The new tax plan represents nothing more than a tax shift, giving enormous tax cuts to wealthy taxpayers and profitable corporations while everyone else pays the tab. Women are among the biggest losers of the plan.
Lawmakers handed us a tax plan that, while facially gender neutral, will likely disadvantage women. The tax plan provides a windfall to the wealthy: nearly >>two-thirds of the net tax cut will flow to the top 1 percent of taxpayers with incomes above $393,000. Women generally hold substantially less income than their male counterparts, especially at the top of the income ladder, as federal >>income tax data show. Assuming state-level taxpayer data for North Carolina resembles national data for the gender income gap, men earn the lion’s share of income at the top level in North Carolina too. This rough, back-of-the-envelope analysis suggests that men will likely take home a majority of the tax breaks.
The cut for the wealthy largely stems from switching the state personal income tax from a progressive rate structure—which has been a bedrock feature of this tax since it was enacted in 1921—to a flat tax. This means that the income tax is no longer based on the ability-to-pay principle. Women ended up further on the losing side of the tax plan due to the elimination of the Child Care and Dependent Tax Credit, a credit for long-term care insurance, and a deduction for contributions to North Carolina 529 college savings plans. Notably, the tax plan further diminishes tax fairness by choosing to let the state Earned Income Tax Credit (EITC) expire at the end of last year. The EITC goes to families that work but struggle to get by on low wages, partially offsetting the higher share of their income paid in total state and local taxes compared to high-income families. It helps families pay for basic necessities, fights child poverty, and improves children’s chances of success as adults.
At a time when good-paying jobs are still hard to come by, the expiration of the state EITC equates to a huge loss for Tar Heel women—especially single mothers. The EITC, which encourages and rewards work, >>significantly increases attachment to the labor force among single mothers. Furthermore, by increasing women’s employment and earnings, the EITC >>boosts the size of the Social Security retirement benefit amount they eventually receive. We already know that women face greater financial insecurity than men during their retirement years; the loss of the state EITC does nothing to help reverse this trend. Come next tax year, its absence will be noticeable to more than 900,000 taxpayers.
And of course, we can’t overlook the huge revenue losses associated with the tax plan. Over the next five years, $1.2 billion fewer dollars will be available for early childhood services, public education, health care, and the other building blocks of a strong economy as a result of the tax plan. Cuts to public investments tend to hit women harder, as the impact is felt both as recipients of services and as providers of state-funded services. North Carolinians got a glimpse of what’s to come with the current state budget, which falls far short of what’s needed, especially in public education. The revenue losses will only accumulate and grow overtime.
We also can’t ignore the absence of women at the state legislative policy tables. Of the dozen-plus leadership positions on the state House and Senate Finance Committees that develop tax policy, only one slot was held by a woman. Perhaps having more women at the table during the tax negotiations would have resulted in a less lopsided-tax plan. No one knows for sure. What we do know is that women deserve to have equal input during policy discussions.
The bottom line is that the new tax system impedes economic empowerment and security for far too many women and their families. Rather than putting a premium on fairness, state legislators handed us a tax system that shifts taxes away from the wealthy and towards the bottom 80 percent of taxpayers, on average.
Tazra Mitchell is a Policy Analyst at the NC Budget and Tax Center and is the Second Vice President of NC Women United.
 This analysis includes the loss of the state Earned Income Tax Credit