Low-income taxpayers pay nearly twice the rate of high-income taxpayers in NC

According to a study from the The Institute on Taxation and Economic Policy and the Budget & Tax Center, North Carolinians with the lowest income pay more than 40 percent more in taxes (as a percent of their income) compared to the state’s wealthiest residents.

The ITEP even calls the state and local tax system “unfair,” ranking North Carolina as number 31 on the list of states with the “most unfair tax systems” in the country. The study bases this, in part, on the number of regressive tax structures in place.

“The study, Who Pays?, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes,” reads a press release from the North Carolina Justice Center. “The lowest 20 percent of North Carolinians – earning less than $18,000 – pay 9.2 percent of their income in taxes” whereas the top 1 percent of earners (who earn more than $376,000) pay 5.3 percent of their income in taxes.

“The upside down nature of the state’s tax code puts a heavier load on middle- and low-income taxpayers at a time when their incomes are stagnant and falling,” says Cedric Johnson, public policy analyst with the Budget & Tax Center. “North Carolina has put in place policies to address this issue in the past and should once again consider policies like a state Earned Income Tax Credit, a renter’s credit or an enhanced and refundable Child Tax Credit to improve the state’s tax code.”

Here are some finds for North Carolina in the study:

North Carolina Tax Code Features

Progressive Features

• Provides a targeted nonrefundable child tax credit

• State sales tax base excludes groceries

Regressive Features

• Personal income tax uses a flat rate

• Comparatively high state and local sales tax rates

• Local sales tax bases include groceries

• Fails to provide refundable Earned Income Tax Credit (EITC) since credit was eliminated in 2013

• Fails to provide a property tax “circuit breaker” credit for low-income taxpayers

• Child Tax Credit is nonrefundable

Tax Changes Enacted in 2013 & 2014

• Converted graduated personal income tax to a flat 5.75 percent rate

• Eliminated all credits other than the child tax credit which was increased by $25 for those with incomes under $40,000

• Eliminated personal exemptions and increased standard deduction

• Eliminated all itemized deductions other than mortgage interest and property taxes (subject to a $20,000 cap), and charitable contributions (no cap)

• Eliminated $50,000 business pass-through exclusion from personal income tax

• Cut the corporate income tax rate

• Expanded the sales tax base to a few goods and services; electricity now subject to full state and local sales tax rate

More from the NC Justice Center:

How North Carolina taxes residents matters for myriad reasons. In recent years, anti-tax advocates have pushed for tax policies across the country that would reduce tax rates for the wealthy and profitable businesses. The tax plan passed by North Carolina state lawmakers in 2013 replaced a graduated personal income tax rate structure (meaning the higher one’s income, the higher one’s effective personal income tax rate) with a flat rate of 5.75, allowed the state’s Earned Income Tax Credit to expire, eliminated personal exemptions and most itemized deductions, expanded the sales tax base, and allows the corporate income tax rate to be cut from 6.9 to as low as 3 percent.

The problems with this agenda are clear. Foremost, many anti-tax proposals would make regressive tax structures even worse, in part because they often rely on hiking taxes that fall more heavily on poor and middle-income families to pay for tax cuts at the top. Second, aggressive tax cuts that favor businesses and the wealthy can result in states having difficulty adequately funding basic public obligations such as education.

There’s also a more practical reason for North Carolina and all states to be concerned about regressive tax structures, according to ITEP. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

And, according to ITEP, its not just North Carolina. “Middle- and low-income people in all 50 states pay substantially more of their income in state and local taxes than wealthy
individuals and families,” reads a passage in ITEP’s press release. “The disparity is most stark between the lowest-income households and the top 1 percent of households. On average, the poorest 20 percent of taxpayers nationwide pay more than double the effective tax rate paid by the richest 1 percent of households (10.9 percent v. 5.4 percent). ITEP’s analysis factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes.”

To read the full report, learn more about the study and/or check out the interactive tax map, click here.

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About Hayley Benton
Current freelance journalist and artist. Former culture/entertainment reporter at the Asheville Citizen-Times and former news reporter at Mountain Xpress. Also a coffee drinker, bad photographer, teller of stupid jokes and maker-upper of words. I can be reached at hayleyebenton [at] gmail.com. Follow me @HayleyTweeet

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13 thoughts on “Low-income taxpayers pay nearly twice the rate of high-income taxpayers in NC

  1. Dionysis

    Duh. There has been a systematic transfer of wealth from those who actually work and produce (the working and middle class) to the self-entitled 1% since the Reagan presidency. This income divergence has been the legacy of GOP tax policies. A few highlights:

    1. Each Year Since the Recession, America’s Richest 1% Have Made More Than the Cost of All U.S. Social Programs
    2. Almost None of the New 1% Wealth Led To Innovation and Jobs
    3. Just 47 Wealthy Americans Own More Than Half of the U.S. Population
    4. The Upper Middle Class of America Owns a Smaller Percentage of Wealth Than the Corresponding Groups in All Major Nations Except Russia and Indonesia.
    5. Ten Percent of the World’s Total Wealth Was Taken by the Global 1% in the Past Three Years

    These are facts, supported by hard data. Republicans continue to delude the gullible with repetitious braying of discredited bilge, pushing ‘trickle-down’ economics (a disaster historically), nonsense about the parasitic1% being “innovators” and “creating jobs” (perhaps in China) and so forth. They’re in fact actively working to foster the corporate oligarchy they dream about, and are moving quickly to accomplish that with the complicity of the current Supreme Court, Inc. and the once objective mainstream media.

    http://www.commondreams.org/views/2014/11/03/infuriating-facts-about-our-disappearing-middle-class-wealth

  2. Mark Beutler

    Excuse me. People who earn more, spend more, and pay more local sales taxes. The contrary view is a function of the twisted way this is spun. It is true that higher earners spend a lower percentage of their income on sales taxes (because they spend a lesser portion of their income). But that is true of almost everything lower earners spend money on — groceries, gas, utilities, telephone, housing, healthcare, insurance. If there is a real unfairness issue here, why the fixation with sales taxes? Should wealthy persons pay higher tolls when they drive? It seems to me that everyone should pay the same amount for the same service–that is fair.

  3. And in other ground shaking news on the Raleigh war on the citizens of North Carolina – Water has been found to be wet.

    But y’all knew that already, right?

  4. OneWhoKnows

    Just wait a few more weeks when working people getting subsidies for healthcare get their expected tax refund held by Obama to pay for their healthcare…going to be lots of ravin’ mad peoples. It’sa comin’…

  5. Jim

    LOL. But they have plenty of money for the lottery. Bahahahaha, there are no poor except for the poor veterans who are treated worse than the illegals. But if you’re dumb enough to join the military to fight for this bankrupt society, you are making a poor decision.

    Don’t want local sales taxes to apply to food, then by all means don’t vote in the scumbags who will raise taxes. Property taxes in a double taxed area that go to the elite so that their projects can be paid while the biggest land holders here pay NO PROPERTY TAXES at all under the guise of being a non-profit is never mentioned. What a joke.

      • Jim

        Churches own a pittance compared to Mission, Biltmore, and Grove Park. I see more churches helping the poor than say someone like the greedy at Grove Park who gladly dumped long term employees when they were bought out. Or the greedy at Biltmore who cater to 1 percenters but pay nothing to employees. Sacred cows they are but they smell fo sho.

      • Marian

        I suppose facts are irrelevant, right?

        “The Lifeline (what many call Obamaphones) program originated in 1984, during the administration of Ronald Reagan; it was expanded in 1996, during the administration of Bill Clinton; and its first cellular provider service (SafeLink Wireless) was launched by TracFone in 2008, during the administration of George W. Bush. All of these milestones were passed prior to the advent of the Obama administration.”

        Read more at http://www.snopes.com/Politics/taxes/cellphone.asp#MLT8VdhD37vSHGyy.99

  6. indy499

    Dreadfully, written article. One can only presume the purpose was to deceive.

  7. Tommy Economy

    I bet that the figures for low income folks leave out the level government benefits that they are receiving. In North Carolina these “poor families” receive an average of $25,000 in welfare benefits that are not counted as income . That means that a family “living on $19,000 per year” is actually living on more like $50,000 per year(19k+25K+no taxes) when you factor in their tax free income. I’d have to do some more math but I’m guessing that when you factor in the difference on private insurance with subsidies and medicare the total number is even higher than that. It’s not that I begrudge anyone their government benefits or your right to feel better by helping someone you think is worse off, but let’s at least be honest about the quality of life being lived by “poor people” in the United States today.

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