With Tax Day on our minds this week and state policymakers busy setting the state’s priorities for the next two years, now is an excellent time for North Carolinians to embrace the enormously positive impact that taxes have on our lives and our state. Taxes aren’t just, as the famous adage advises, the price we pay for civilization. Taxes are the foundation of a strong economy and vibrant communities.
It’s easy to forget when we’re filing our returns, but it’s essential to remember that North Carolina’s tax dollars fund public schools, early childhood education and child protection. They also fund our roads, courts, public safety services and clean water. Each of these essential services and structures (and many, many others) plays an important role in ensuring that North Carolina is ripe for business success, communities are growing, and families are economically secure.
And while folks are considering their beneficial impact, there are also a few important things to know about taxes themselves in North Carolina.
First of all, personal income tax collections represent half of the total taxes collected by the state, so they are obviously a critical tool in the state’s support of the building blocks of a strong economy. In addition, all North Carolinians pay sales taxes, excise taxes, and the gas tax throughout the year, which also play a vital role in our state’s wellbeing. Profitable corporations also contribute, although much less than they used to.
This leads to a second key matter: who pays what in taxes. Under the state’s new flat income tax rate, North Carolina’s tax code no longer ensures that the wealthiest taxpayers are paying their fair share. Right now, when all state and local taxes are combined, the highest income North Carolinians pay a combined rate of about 5.3% of their incomes. In contrast, the poorest fifth of North Carolinians pay a rate of 9.2%.
In addition, because profitable corporations have seen a precipitous decline in their tax contributions to the state over the last several decades, there has been an increasing reliance on the sales tax, which hits low- and middle-income people the hardest. Without a “graduated” income tax that taxes the well-off at a slightly higher rate to balance this, the tax system is out of balance and asks more from low- and middle- income taxpayers than the state’s wealthiest taxpayers and profitable corporations.
We need to turn these trends around. Building a great future for North Carolina’s families and communities rests, in large part, on creating and maintaining high quality public systems. We need strong schools and good transportation systems to drive our economy and excellent services like public health clinics and pollution control programs to keep our communities healthy and worth living in. Such investments are only possible with a tax system that can generate adequate revenue and do so fairly.
When the personal income tax was established in North Carolina in the 1920’s its purpose was to support a universal public education system for all children and a network of roads that could transport goods to markets and people to jobs. It was those kinds of investments that helped catapult North Carolina to its leadership position in the South and the nation.
If we want to remain competitive, have a high quality of life and an economy that works for all, then a tax system that allows us to make smart investments and asks all to contribute fairly should be our state’s top priority. We can’t afford to let the public investments that previous generations built, such as our nationally recognized public universities, erode to the point that they don’t do any of us any good.
Simply put, taxes have helped build this state and there is much more work to do to make sure that North Carolina has the shared resources to invest for a better future. We should be thankful for them and have the courage, honesty and foresight to say so publicly.
Alexandra Sirota is the Director of the North Carolina Budget and Tax Center.