North Carolina legislators are moving ahead with plans to double down on fiscally-ruinous income tax cuts less than two years after enacting a significant tax cut package that was heavily tilted to the Tarheel state's richest residents. Senate Bill 526 would reduce the personal income tax rate from 5.75 to 5.5 percent, replace the standard deduction with a zero percent tax bracket for the first $20,000 of income, and reduce the corporate income tax from 5 to 4 percent. Worse, the bill would eliminate revenue benchmarks passed in 2013 that would have prevented corporate income tax cuts if revenue collections didn’t reach a certain level. All told, the tax cuts would cost at least $1.4 billion in revenue over the biennium. Currently, North Carolina faces a $271 million shortfall.
Luckily, opponents of the tax cut plan continue to sound the alarm. Alexandra Sirota of the Budget and Tax Center (BTC) blasted the proposed income tax cuts, saying previously-enacted cuts “have undermined the state’s ability to invest in infrastructure, in research and development at public universities and in many other public services that underpin a strong economy.” Sirota pointed out that some lawmakers who back further income tax cuts have sought to hedge their bets by securing more sales tax revenue for their districts – an implicit admission that revenue growth is unlikely to occur.
A recent BTC report found that the evidence gleaned from tax cuts passed in North Carolina in 2013 disprove the arguments that tax cuts create growth and attract businesses. While the state’s job growth since December 2013 has been slightly stronger than the national average, personal income and hourly wage growth in North Carolina have both trailed the nation. The report also cites an ITEP analysis which found that the 2013 tax cuts overwhelmingly benefited the wealthy and profitable corporations, and that the 2015 plan would send another $2,000 back to the top one percent of earners.
Advocates aren’t the only ones condemning the plan. An editorial in The Charlotte Observer chides state lawmakers for their attempts “to fund the fiction that giving ‘job creators’ more money is good for North Carolina. Doing so ignores history, which shows there’s no link between lowering state taxes and economic growth. That’s because businesses spend money when they can make money, not simply because the government gave them more of it.”