Election 2012 Issue Brief - State Tax Revenue

Background

North Carolina’s revenue (or tax) system is outdated and upside-down, making the state more vulnerable to fiscal crises in economic downturns and asking more from those with the least ability to pay.

The fundamental purpose of the revenue system is to fund investments in the public structures—schools, courts, hospitals, colleges and universities, and infrastructure—that are critical to preserving a strong middle class and building a 21st century economy. However, North Carolina’s existing revenue system is failing the people of the state because it does not meet the three key principles for responsible tax policy – equity, adequacy and stability.

North Carolina’s revenue system:

  • Is inequitable because it asks more from those with the least ability to pay and asks the least from those with the greatest ability to pay.
  • Is inadequate because state revenues are insufficient to meet the needs of the state’s people and fail to keep pace with the state’s economic and population growth.
  • Is unstable because numerous exemptions and loopholes make revenues more volatile in the face of ups and downs in the economy.

North Carolina’s revenue system is in dire need of modernization.

  • Two important sources of state tax revenue, the sales tax and the franchise tax, have changed little since the 1930s.
  • Middle-class and low-income North Carolinians pay a greater share of their incomes in state and local taxes than the wealthiest North Carolinians do.
  • North Carolina’s overall tax levels are consistently in the lowest third of all states, with taxes paid by businesses ranking among the lowest of all states.
  • The share of state taxes paid by corporations on their profits from doing business in North Carolina has fallen by more than half since 1971.

 

Questions for Candidates

  • Middle-class and low-income North Carolinians pay a greater share of their incomes in state and local taxes than the wealthiest North Carolinians do. Will you support revenue reform that makes the system fairer while also raising the revenue necessary to support investments in the state?
  • Will you ensure that the revenue system remains diversified, collecting revenue from sales, personal income and corporate income?
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