Income Tax Cap Would Hurt North Carolina

North Carolina’s Senate has passed a fiscally irresponsible bill that would ask voters in November to approve a constitutional amendment limiting the state’s income tax rate to no higher than 5.5 percent, slightly above the 5.499 rate set to take effect in January.  This constitutional amendment would hurt the state in a number of ways, including:

• Locking into the state constitution massive tax cuts for the rich.  The state’s current income tax rate is the result of enormous tax breaks that policymakers recently gave to the state’s wealthiest residents.  The state paid for these tax breaks by raising taxes on low-income families and sharply cutting the revenue that schools and other public services need for the future.  Locking these massive, lopsided tax cuts into the state’s constitution would make them effectively permanent.
• Jeopardizing the state’s bond ratings, which could raise the cost of future infrastructure projects.  Bond rating agencies control the price states pay to borrow for transportation and water projects as well as other infrastructure needs.  These agencies recognize that constitutional caps on income tax rates constrain a state’s ability to raise needed revenue.  As such, a constitutional cap would drop the score North Carolina receives for certain criteria used to determine bond ratings.  Lower scores can lead to a lower rating, meaning states have to pay higher interest rates to borrow.
• Shifting more of the cost of public services to the middle class and poor.  With income tax increases essentially off the table, North Carolina would have to turn to sales taxes and local property taxes to meet emerging needs.  Those taxes take a bigger bite out of the incomes of middle-class and poor families than from the wealthiest.  Permanently capping income tax rates would further shift who pays for services away from the rich and onto the rest of the taxpayers.

The tax-cap measure goes next to the North Carolina House, which should reject it.