North Carolina’s Tax Cuts Are a Warning, Not a Model for States

North Carolina has been a testing ground for the latest trickledown economic policies for more than a decade. It was one of the first states to begin what has become a tax-cutting spree over the last three years, as more than half of states have cut corporate or personal income taxes.

While North Carolina garnered accolades from the Tax Foundation, the Wall Street Journal, and other organizations, it should serve as a warning, not a model. Contrary to what some say, things in North Carolina aren’t great—they aren’t even fine.

The tax cuts have enriched shareholders, executives, and the wealthy few at the expense of children, young families, working people seeking to build wealth, and older people hoping to age in our communities safely.

Everyday North Carolinians know they’re the ones who actually drive our economy forward, and our new poll released in April shows they are unhappy with the direction privileged special interests have tried to chart. An overwhelming share, 77%, reject the elimination of the corporate income tax slated for 2030.

That’s because families in North Carolina are confronting the realities of underfunded public systems every day, including lack of bus transportation for public schools, closure of child care centers, and a dearth of jobs training for the future. If the state continues the march to zero for corporate and personal income taxes, it will be on track to lose more than $13 billion in annual tax revenue by 2031.

People in North Carolina want to set a different course. Seventy percent of North Carolinians said they wanted to see a state budget that invests more in public education, infrastructure, and health care, even if that means the wealthy and profitable corporations would need to pay more in taxes.

They also want to see economic policies that level the playing field and do more to create a fairer economy for those living in poverty and struggling to get a foothold in an economy that is buttressed by rules that enrich the already wealthy.

They aren’t alone: Numerous polls show that people across the country want to close corporate tax loopholes and raise taxes on the wealthy.

The good news is policymakers can develop legislation that matches most North Carolinians’ vision for the economy. Gov. Roy Cooper (D) released his fiscal year 2024-25 budget proposal last month and included key tax policy changes to shore up revenue, spending increases targeted to the drivers of economic well-being, and an overall spending level that brings the state closer to historical levels of public investment.

The budget included $745 million for child care and early education, $200 million of which would go toward stabilizing child care providers and prevent closures as they face impending loss of federal funds at the end of June. The governor also prioritized funding the public K-12 system, with an additional $730 million to fund teacher raises, recruitment and professional development, and teaching assistants in K-3 classrooms.

These initiatives could be funded simply by freezing the corporate income tax rate at its current rate of 2.5%—already the lowest among the 44 states with the tax—and restoring a graduated structure to North Carolina’ personal income tax rate. Because the lowest-income North Carolinians pay more in state and local taxes as a share of their income than the richest in our state, returning to a graduated income tax structure would be a welcome correction to our upside-down tax code.

This budget proposal shows what could be possible in North Carolina and elsewhere if we use our collective wealth not to subsidize private school for the rich and profit margins for multinational corporations, but to fund what really drives our economic success: our people.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Alexandra Forter Sirota is executive director of the NC Budget & Tax Center.

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