1. North Carolina’s revenue system is broken and outdated.  The state and local tax system was designed during the Great Depression for an agriculture- and manufacturing-based economy.  Today, North Carolina is a hub of medical and technological research and industry; numerous large multi-state corporations call North Carolina home.  North Carolina's tax system isn't designed for such a system.  Parts of the economy that should reasonably fall under the tax code do not, resulting in a higher rate of taxation for everything that does fall under the code.  This is unfair to most individuals and small businesses.

 

2. The state's tax system is also unfair because the wealthy contribute less than low- and middle-income families do. The lower a family's income is, the more likely it is to spend almost all of its money on the basics of life – and all of those things, with the exception of food, are taxed. As a result, the lowest-paid workers in North Carolina pay 10.7% of their income in taxes, compared to only 7.1% for the wealthiest people.

 

3. The federal Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income working individuals and families.  The federal EITC is the country’s most effective program for supporting low- and moderate-income working families. Enacted in 1975, the EITC rewards work, increases fairness in the tax code and helps low- and moderate-income workers close the gap between what they earn and what they need to afford basic necessities.

 

4. In 2009, North Carolina increased the state EITC from 3.5% to 5%.  The state EITC piggybacks on the federal credit by allowing state tax filers to claim a credit equal to 5% of the federal credit.  This will help supplement the wages of low- and moderate-income working families in our state and stimulate our local economies.  More than 845,000 working families will benefit from the increased state EITC.

 

5. In 2009, the state EITC lifted 40,000 North Carolinians out of poverty; 22,000 were children.

 

6. North Carolina’s current corporate income tax law leaves the state vulnerable to companies that are looking to hide their true earnings in the state. Businesses that cannot, or chose not to, take advantage of tax avoidance schemes are put at a competitive disadvantage under the current system. Moreover, the current legal structure also deters the Department of Revenue from issuing guidance that could be helpful to companies that may have legitimate business reasons for setting up separate, but affiliated, entities.

 

SOURCES

1. NC Justice Center, Budget and Tax Center, “Creating a Fair and Adequate Revenue System,” http://ncjustice.org/?q=node/155.

2. Ibid.

3. NC Justice Center, Budget and Tax Center, “A State EITC: A Hand Up, Not a Hand Out,” http://ncjustice.org/?q=node/126.

4. NC Justice Center, Budget and Tax Center, “2008 State Legislative Session Wrap-Up,” http://ncjustice.org/docs/2008legislativewrapup.pdf.

5. NC Justice Center, Budget and Tax Center, “Letter to Lawmakers: Renew and Improve Refundable Tax Credits For Working Families,” http://www.ncjustice.org/?q=node/523.

6. NC Justice Center, Budget and Tax Center, “BTC BRIEF: SB 1172, “Fair Tax Penalties”: A Hollow Solution to the Real Problem of Aggressive Corporate Tax Avoidance,” http://ncjustice.org/?q=node/545.