Report discusses how a tax rate cap would limit the graduated tax structure used in previous recessions, at a cost of $2.4 billion to N.C.
RALEIGH (Sept. 5, 2018) – A new report analyzes an income tax rate cap amendment to the state Constitution with particular focus on the costs of such a move for the state and for everyday North Carolina taxpayers.
The ability to raise revenue through the income tax has been a critical tool for policymakers in N.C.’s recent history. During both of the recessions in the 2000s — from 2001 to 2006 and from 2008 to 2011 — state policymakers enacted temporary top brackets on high-income taxpayers to raise revenue that minimized cuts to public schools, public health, and other investments that were important to the long-term well-being and economic success of the state. Specifically, a 7 percent maximum allowable income tax rate as proposed would lock in a loss of $2.4 billion in state revenue annually when compared to what could be raised if policymakers were able to add two top brackets on higher income.
Some other key points in the new report by the Budget & Tax Center, a project of the NC Justice Center:
Millionaires are the primary beneficiaries when the income tax rate is not allowed to go above 7 percent. The top 1 percent of taxpayers receive more than half of the total next tax cut from a 7 percent maximum income tax rate when compared to what would be possible with a graduated rate structure with brackets on higher incomes.
Fewer dollars are available to make critical, transformative investments in our state. A graduated rate structure that taxes income above certain income thresholds at rates above 7 percent, like what was in place during the 2001-2006 period, would provide an estimated $2.4 billion in state revenue.
Middle- and low-income taxpayers will see their tax load increase. Research has shown that tax limits do little to ensure that taxes are held down. Instead, policymakers often raise taxes such as sales and property taxes to meet identified needs in communities.
Barriers to equitable outcomes and reaching the full economic potential of the state is blocked when the state underinvests in opportunity for all and delivers tax cuts to the wealthy few. One of the state’s persistent economic challenges is that job growth has been uneven and barriers to opportunity remain, particularly for communities of color and rural places. These barriers are made worse and continue to compound over time when state investments are arbitrarily capped.
Counties that rely on state revenue for more than one-tenth of their annual budget would be hard hit by limits on state dollars. As local policymakers contend with fewer state dollars to support local needs, many counties will face greater difficulty in meeting local needs. The result will require local leaders to either cut services or raise property taxes. Since 2012-13, 76 counties have raised their property tax rates and many have also revalued properties in their local jurisdictions.
“There are real costs associated with capping the maximum allowable income tax rate at 7 percent, most notably by limiting a key revenue source available to policymakers to support thriving communities across the state,” said Alexandra Sirota, Budget & Tax Center Director and author of the report.
FOR MORE INFORMATION CONTACT Alexandra F. Sirota, Budget & Tax Center Director, 919-861-1468 or Alexandra@ncjustice.org; Mel Umbarger, Budget & Tax Center Senior Communications Specialist, email@example.com.
The NC Justice Center is a nonpartisan organization that works to eliminate poverty in North Carolina by ensuring that every household in the state has access to the resources, services and fair treatment it needs to achieve economic security.
|Download the report|