With new tax cuts taking effect in January, North Carolina is poised to become the 17th most regressive tax system in the nation.
Budget Gridlock and Tax Cuts for the Wealthy
The General Assembly still has not passed a comprehensive budget, and with no plans to return this year, educators remain without a raise, even as NC State Health Plan premiums are set to increase again. House Speaker Destin Hall acknowledged the frustration but said he remains confident lawmakers will eventually pass a “responsible budget” that reflects the interests of North Carolinians and keeps the state a “beacon for education, business, and family values.”
A major source of gridlock is how to navigate the looming fiscal cliff created by new tax cuts set to take effect January 1. The NC Budget & Tax Center estimates these cuts will cost the state more than $1 billion in revenue next year and $14 billion by 2030, benefiting the wealthiest households while limiting the state’s ability to address rising childcare and housing costs or raise pay for teachers and state employees. North Carolina already has a regressive tax code, meaning low-income families pay a much larger share of their income in state and local taxes than the wealthiest residents. That imbalance has deepened since 2013, when efforts to phase out the state income tax began.
Starting January 1, families in the bottom 20% of earners will pay a tax rate 134% higher than the top 1%. According to ITEP, North Carolina currently ranks 24th in tax code regressivity, but will drop to 17th most regressive with the new cuts.
Uncertainty for Schools
This shrinking revenue base comes at a moment when the cost of living is rising and schools remain deeply underfunded. Without additional funds, lawmakers will be forced to stretch fewer dollars across core state responsibilities– and in moments like this, education is often the first area to face cuts.
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