A Progressive’s Guide to Monitoring Tax Reform

Today’s North Carolina is the product of generations of investments made to promote the common good. By working together, North Carolinians have created a host of world-class public services and institutions in education, transportation, public safety, recreation, and health care.  In return, these investments have fueled North Carolina’s growth, given us an enviable quality of life, and helped to make our state a player in the global economy.  But the tax system that fueled these investments cannot keep up with this new, thriving North Carolina. Our economy, which was once based on agriculture and manufacturing, is now driven by technology, health care, and the service sector. Even as businesses flourish and our population booms, this outdated tax system is increasingly unable to keep up with growing demands for roads, schools, and services.  It is essential that we reform North Carolina’s tax system in order to have the funds needed to maintain and improve our public structures, but we must ensure any changes made do not hurt the state’s working families.  It is important that North Carolina’s progressive community speak out in favor of a tax system with two principles at its core: fairness and adequacy. 

 

Fairness - North Carolina must collect the revenues that pay for state and local government in a fair and progressive fashion that assures all individuals and corporations pay their fair share. The state income tax is moderately fair, but North Carolina’s sales, excise, and property taxes are dramatically unfair. The result is a system that requires the poorest households to pay a greater share of their incomes in taxes than the wealthy.  A fair tax system should be structured such that, when all taxes are combined, households with higher incomes pay the greatest share of their incomes in state and local taxes. It is also important that similar groups of taxpayers (i.e. similar in income, household size, etc) are treated in the same manner. 

 

Adequacy - North Carolina’s tax system must bring in enough money to pay for the needed investments and services. An adequate tax system should be structured such that tax sources grow with the economy.  

 

Fairness and adequacy are intricately linked. The incomes of corporations and the rich grow much faster than those of low- and moderate-income families. Therefore, soaking the poor will never yield as much revenue as even modest taxes on the rich. Unless tax policies align with the income distribution, North Carolina will struggle to generate revenues adequate to its needs.  Ideas for progressive tax reform include:

• Maintain primary reliance on the personal income tax and establish more income tax brackets and rates. 
• Increase the refundable state Earned Income Tax Credit (EITC) percentage.
• Broaden the sales-tax base to include more personal services and correspondingly lower the rate. This will help the sales tax to more closely track growth in personal income and will improve fairness if done in a revenue-neutral manner.
• Do not increase the overall reliance on consumption taxes, and do not increase sales taxes to fund income tax cuts.
• Establish combined reporting to make corporate income taxes fairer to homegrown businesses.
• Eliminate ineffective corporate tax breaks.
• Help low-income homeowners and renters with their property taxes through a refundable circuit-breaker credit.

 

Citizen involvement in monitoring tax reform is crucial. Adequate tax revenue is fundamental to our way for life, but it is up to progressive, active citizens to ensure that the state collects this needed revenue fairly. Let your lawmakers know that you care about the role taxes play in funding a prosperous and healthy society and remind them of the need for a fairer and more adequate system.

 

BY MEG GRAY, POLICY ANALYST, NORTH CAROLINA JUSTICE CENTER