Did GOP tax overhaul “make ends meet” for NC families? What the math says. | Opinion

In January 2013, state Senate leader Phil Berger opened the legislative session by asking his fellow senators to think about families “out there struggling to make ends meet” and to craft bills that would “help working families take home more in their paychecks.”

The result was a historic overhaul of the state tax code. It replaced a graduated income tax with a flat tax, ended multiple tax credits and instituted the first steps toward steadily reducing the percent corporate income tax that is now scheduled to disappear by 2030.

Ten years later, the state’s personal income tax has dropped from a graduated tax that peaked at a top rate of 7.75 percent to a flat tax of 4.75 percent for all state income taxpayers. Just as Berger asked, taxpayers are now paying less in income tax, but many are paying more in taxes overall because of lost tax credits, the expansion of the sales tax and higher property taxes.

Meanwhile, the so-called reform of the tax code has served to only make it more unfair as lower-income earners pay a larger share of their income in taxes than those with higher incomes.

In a telling measure of the tax inequity to follow, Republicans in 2013 eliminated the estate tax that applied only to estates valued above $5.25 million (a tax paid by only 23 tax filers in 2012) while taking away the state’s Earned Income Tax Credit, which benefited more than 900,000 working households.

Cutting average earners’ income taxes modestly while heaping lopsided savings on the highest earners means there’s less state revenue available for a major state expense – paying for public schools. That shortfall in turn drives up local property taxes as counties try to compensate for a lack of state school funding.

Meanwhile, the sales tax – a regressive tax in which millionaires and paupers pay the same – was extended to services such as car repairs, work on a home’s HVAC system or movie tickets.

The share of the state budget coming from the sales tax rose from 25.7 percent in 2006-2007 to 30.4 percent in 2020-2022. Over the same period, the share of state revenue coming from the corporate income tax has dropped from 7.5 percent to 5.1 percent, despite a sharp rise in corporate profits over the past decade.

An analysis prepared for us by the nonprofit NC Budget & Tax Center looked at how tax changes have affected middle income families earning between $44,000 and and $77,000. Thanks to state income tax cuts, the average household in that income range receives $1,275 more a year in take-home pay, or about $25 a week.

However, the same household lost a $258 child-care tax credit, pays $271 per person more in property taxes and spends $2,714 in sales tax. That household is also coping with an average $4,548 rise in housing costs since 2013 and a whopping $4,095 increase in child-care costs per child. Those latter costs could be reduced if the legislature would pay more into the state’s affordable housing fund and dedicate what’s left of corporate income tax revenue to subsidize child care.

Low- and middle-income North Carolina families have paid dearly for the false savings of tax cuts. Not only are they still paying more in taxes overall, they are getting less in public services. Low pay for state employees has led to vacancy rate above 23 percent and public schools statewide have more than 5,500 instructional vacancies. The court system is chronically underfunded. The Department of Environmental Quality lacks the funding to better protect North Carolina’s natural resources. DMV offices have long waits for online appointments for lack of employees. A shortage of school bus drivers means on some days the bus does not come.

Gov. Roy Cooper’s proposed budget offers a measure of the unmet needs. Overall, his two-year budget would suspend further tax cuts and spend $6 billion more than Republican leaders have set as their spending limit. Berger dismissed that plan as an “irresponsible, unserious proposal from a lame-duck governor who wants future North Carolinians to pick up his tab.”

Instead, the Republican plan is to continue passing the tab down the economic ladder to cover basic services while continuing to make tax cuts that mostly benefit the wealthy and major corporations.

This story was originally published April 5, 2023 at 4:30 AM.