Amendment “Cap Income Taxes at 7%”
Ballot language: Constitutional amendment to reduce the income tax rate in North Carolina to a maximum allowable rate of seven percent (7%).
- An income tax cap will tie the hands of future generations.
- Lawmakers will have to raise other taxes to make up the difference.
- North Carolina won’t be able to fund schools and other priorities adequately.
- The wealthiest will continue to get the biggest tax breaks.
- The current tax rates are already lower than 7%: 5.25% (personal income tax)
and 2% (corporate tax rate)
Voters will be asked to vote on six amendments to the North Carolina Constitution in November. They are all unnecessary, unprecedented, and politically motivated. We need to nix all six. It’s unclear who will write the final ballot language, but the current language is “Constitutional amendment to reduce the income tax rate in North Carolina to a maximum allowable rate of seven percent (7%).”
This amendment originated as Senate Bill 75 and proposes changing one word in the North Carolina Constitution: “The rate of tax on incomes shall not in any case exceed seven percent.” The current language is “ten percent.” Lowering the income tax rate would be possible without amending the Constitution, but supporters can claim that they are lowering the income tax rate, even though the personal income tax rate currently stands at 5.25%, and the corporate income tax rate is 2%.
The proposed amendment may appeal to some voters, but it will create problems for the people of North Carolina. Income taxes are the largest source of revenue for the state. They are necessary funds that we pay to support the common good, including public education, health and human services, economic development, public safety, transportation, agriculture, and the environment. While the economy is relatively healthy now, during a budget shortfall the only way to make up for lost revenues is to increase local taxes, property taxes, sales taxes, and user fees. These regressive taxes nickel and time North Carolinians, disproportionately impacting the poor and middle class.
Without the ability to align the income tax rate with where income is growing, other taxes such as sales and property taxes will increase to fund the needs of our state. This asks more from low- and middle-income North Carolinians. Already taxpayers with incomes below $60,000 (as a share of their income) pay nearly two times what millionaires pay in total state and local taxes. The cap would make this worse.
A cap on income tax rates also exposes North Carolina to financial risk in times of economic downturns. Following the recession of 2008, for example, North Carolina faced a $3.2 billion budget gap for fiscal year 2009. The budget gap for fiscal year 2010 grew by $1.5 billion to a total of $4.6 billion. At a time when North Carolina’s population is growing, more people and less money means a significant reduction in state services.
Recent tax cuts have also jeopardized the state’s fiscal future. Eric Figueroa, Senior Policy Analyst for the Center on Budget and Policy Priorities, has cautioned, “North Carolina since 2013 has enacted tax cuts that will cost $3.5 billion a year, or 15 percent of the state’s general fund budget, once they take full effect in 2019.” Capping the primary source of revenue for the state also puts at risk North Carolina’s coveted bond rating because it limits the state’s ability to react to negative economic developments.
According to the Budget and Tax Center of the NC Justice Center, “The final state budget, passed by the NC General Assembly after overturning Governor Cooper’s veto, continues to underinvest in areas of great public need and neglects to account for upcoming federal budget cuts. Instead, the new $23.9 billion budget that lawmakers enacted maintains the same rigid commitment to reducing public investments in the face of growing and changing needs.”
Richard Moore, NC State Treasurer from 2001-2009, has cautioned that lowering the income tax rate “would expose our state to financial risk, threatening the economic and physical wellbeing of North Carolinians across the state.”
We must protect the largest source of North Carolina’s revenue to ensure that the state can keep up with the needs of a growing population while retaining its fiscal flexibility in an uncertain economic world. Vote against the amendment to “Cap Income Taxes at 7%”!