Six years into their rule, the Republican leaders of the North Carolina General Assembly are not in danger of running out of ideas. That’s not because they have a lot of them. It’s because they only have one – cut taxes. They’ve eliminated the estate tax, chopped the corporate income tax from 6.9 percent to 3 percent – the lowest in the nation – and converted the progressive personal income tax to a flat tax that heaped disproportionate savings on the state’s wealthiest earners.
All of this cutting will cost the state more than $1 billion a year in lost revenue. Now the tax-code lumberjacks are at it again, this time with Senate Bill 325, the Republicans’ so-called “Billion Dollar Middle Class Tax Cut Act.” It passed the Senate last week in a party-line vote and is waiting on the House
This Act is also an act in the theatrical sense. It’s not real. First, it’s not really $1 billion. An analysis by the N.C. Budget and Tax Center, a project of the NC Justice Center, which advocates on behalf of middle- and low-income families, finds that the proposed tax cut is actually about 20 percent short of $1 billion. Second, the combination of rate cuts and increased deductions in Senate Bill 325 mostly benefits not the middle class, but the wealthy and large corporations.
The center’s analysis found: “Nearly half of the total net tax cut... would flow to the top 20 percent of income earners. By contrast, only 29 percent of net tax cut benefits would flow to the bottom 60 percent of income earners – those with income of $57,000 or less.”
Tax cuts can help earners and the economy, but their effectiveness depends on timing and targeting. In North Carolina, the cuts have been wrong on both points. Taxes are being reduced when the economy is growing and not in need of stimulation. And the savings are going mostly to people and corporations who are already benefiting greatly from the national recovery.
The stock market’s long climb and rising real estate values have further enriched the wealthy. Meanwhile, The Wall Street Journal reported on corporate earnings last week with a front page headline that said: “Quarterly profits seen strongest since 2011.” Yes, that’s the same year Republicans took control of the state House and Senate, but the national corporate profits haven’t a thing to do with North Carolina’s tax cuts. (By the way the “Middle Class Tax Cut Act” includes another .5 percent reduction in the state corporate income tax. Not only are big corporations now people, they’re apparently middle-class people.)
After all their hoopla about cutting income taxes for ordinary people, the Republicans don’t deliver much. A statement from Senate leader Phil Berger cites this example: “A married couple with two children earning the N.C. median household income of roughly $47,000 per year receives and additional tax cut of nearly $200 under the proposal – eliminating close to 14 percent of their total state tax burden. Combined with other major tax reductions enacted by the General Assembly, the same family would pay $318 less in state income taxes than they paid in 2012.”
That sounds OK, but what it comes out to is $6 a week, a savings that is easily offset by the Republicans’ expansion of the sales tax to include such services as auto repairs, home repairs and tickets to sporting and entertainment events. Meanwhile, profitable corporations got an automatic 1 percent tax cut this year that will save them $500 million. And the Tax and Budget Center estimates that SB325, combined with past income tax reductions, will save that state’s top 1 percent of earners $19,000 annually. The middle 20 percent would get a tax cut on average of $293.
Reducing the tax burden on corporations and the wealthy during a time when both are already enjoying financial gains is bad management of the state’s resources. The General Assembly’s tax giveaway is especially wrongheaded when the needs of a growing state are going unmet.
One in four children in North Carolina lives in poverty. There is an opioid epidemic that requires more treatment facilities and services. There is a critical shortage of psychiatric hospital beds and the mentally ill are filling our jails and prisons. Growing cities are being choked by traffic as the state fails to support mass transit. Rural counties, the base of the Republican majority, are losing jobs and population as their representatives pump money into a trickle-down concept that hasn’t trickled down.
Republicans crow about how they’ve eliminated deficits, but the truth is they are responsible for a yawning shortfall in investment in North Carolina’s infrastructure, schools and services. But the legislature’s Republicans don’t want to consider those needs. They have only one idea – collect less from those with the most.
Barnett: 919-829-4512, nbarnett@ newsobserver.com