North Carolina’s Tax Cuts Far From Praise-Worthy

The Tax Foundation’s new chartbook, “North Carolina Illustrated: A Visual Guide to Tax Reform,” showers praise on North Carolina’s recent tax cuts, while leaving out fundamental facts about the harm those tax cuts have caused and the additional damage they will do in the future.  North Carolina’s tax cuts shouldn’t be mistaken for “tax reform,” let alone serve as a model for other states. 

The state’s recent tax changes: 

• Cut taxes for wealthy people and corporations, but raised them for middle- and low-income people.  North Carolina’s 2013 tax package slashed income tax rates, eliminated the estate tax, and took other steps that disproportionately benefit the rich, while expanding sales taxes, eliminating the state’s Earned Income Tax Credit, and taking other steps that raised taxes disproportionately for middle- and lower-income people.  Additional income tax cuts that the state enacted this year lessened the rich’s share of tax payments even further.  That’s the wrong direction to take when inequality in North Carolina is at historically high levels, and so many families are struggling to get ahead.  And it makes a tax system that asks too little of the wealthy even more unbalanced. 
• Weakened North Carolina’s education system and other keys to a healthy economy.  The tax- cutting spree will cost the state nearly $2 billion annually once all the cuts phase in over the next five years, squeezing the funding available for schools and other building blocks of a strong future.  Already, the tax cuts have left thousands of low-income children in North Carolina without access to pre-kindergarten programming, many schools without up-to-date textbooks, and community college students facing higher tuition.  The additional tax cuts scheduled to kick in in coming years will only increase the harm to the state’s education system and other public services, further eroding the state’s competitive position.
• Are unlikely to boost North Carolina’s economy.  Despite the predictions of proponents, other states that have tried this approach have not seen their economies surge as a result, and ― contrary to Tax Foundation claims ― there’s no consensus in the academic literature that lower state and local taxes promote growth.  More likely, the damage to the state’s education system and other public services will harm, not help, the economy.    

We agree with some of the Tax Foundation’s analysis, including that states should broaden their sales tax base to include more services (but we disagree about doing this to pay for income and estate tax cuts targeted to the wealthy).  We also agree that states should eliminate loopholes in their corporate income tax codes.  But it’s wrong to hail these modest improvements while ignoring more fundamental problems with North Carolina’s overall approach — slashing taxes for the wealthy and corporations at the expense of the state’s future.