MEDIA RELEASE: Low-income taxpayers in North Carolina pay nearly twice the tax rate paid by the richest North Carolinians

RALEIGH (January 14, 2015) – The lowest income North Carolinians pay over 70 percent more in taxes as a percent of their income compared to the state’s wealthiest residents, according to a new study released today by the Institute on Taxation and Economic Policy (ITEP) and the Budget & Tax Center, a project of the NC Justice Center.

The study, Who Pays?, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes. The lowest 20 percent of North Carolinians – earning less than $18,000 – pay 9.2 percent of their income in taxes, the study finds, compared to 5.3 percent for the top 1 percent of earners earning more than $376,000.

“The upside down nature of the state’s tax code puts a heavier load on middle- and low-income taxpayers at a time when their incomes are stagnant and falling,” said Cedric Johnson, Public Policy Analyst with the Budget & Tax Center. “North Carolina has put in place policies to address this issue in the past and should once again consider policies like a state Earned Income Tax Credit, a renter’s credit or an enhanced and refundable Child Tax Credit to improve the state’s tax code.”

North Carolina’s tax system is unfair, or regressive, because the lower one’s income, the higher one’s tax rate. This is in part because North Carolina, like most other states, relies more heavily on sales taxes to raise revenue and has a flat personal income tax that does not take into account a taxpayer’s ability to pay.

How North Carolina taxes residents matters for myriad reasons. In recent years, anti-tax advocates have pushed for tax policies across the country that would reduce tax rates for the wealthy and profitable businesses. The tax plan passed by North Carolina state lawmakers in 2013 replaced a graduated personal income tax rate structure (meaning the higher one’s income, the higher one’s effective personal income tax rate) with a flat rate of 5.75, allowed the state’s Earned Income Tax Credit to expire, eliminated personal exemptions and most itemized deductions, expanded the sales tax base, and allows the corporate income tax rate to be cut from 6.9 to as low as 3 percent.

The problems with this agenda are clear. Foremost, many anti-tax proposals would make regressive tax structures even worse, in part because they often rely on hiking taxes that fall more heavily on poor and middle-income families to pay for tax cuts at the top. Second, aggressive tax cuts that favor businesses and the wealthy can result in states having difficulty adequately funding basic public obligations such as education.

There’s also a more practical reason for North Carolina and all states to be concerned about regressive tax structures, according to ITEP. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

The report is available online at www.whopays.org.

The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.

FOR MORE INFORMATION CONTACT: Cedric Johnson, cedric@ncjustice.org, ; Jeff Shaw, jeff@ncjustice.org, 503.551.3615 (cell); Jenice R. Robinson, 202.299.1066 x 27; Jenice@itep.org