As N.C. Considers Tax Overhaul, How Does Current System Work?
Governor Pat McCrory and state lawmakers are considering major changes to North Carolina's tax structure. So we decided to take a closer look at a report released Wednesday detailing the effective tax rates currently in place. It's from the liberal-leaning Institute on Taxation and Economic Policy in Washington, D.C.
It shows that poor and middle-class families pay a higher effective tax rate in North Carolina than wealthy families. For this report, the effective tax rate combines income, property, sales and excise taxes on the state and local level. So you can think of it as the major taxes you're paying where you live, not counting what goes to the federal government.
When you look at it that way, North Carolina's poor and middle-class families are all paying more than 9 percent of their total family income in taxes. The richest families, on the other hand, are paying 6.5 percent of their family income.
That makes North Carolina about average in terms of how progressive or regressive its system is. There are states like Vermont and Oregon that have effective tax rates that are similar across income groups. And then there are states like Florida and Texas where the effective tax rate is much higher for low-income families.
Of course, Florida and Texas don't charge personal income tax, and that's how some Republican state senators want it to be in North Carolina, too. Senate President Pro Tem Phil Berger has proposed eliminating personal and corporate income taxes. He says that would help the state attract businesses and create jobs.
The Institute on Taxation and Economic Policy noted in its report that several states are considering this.
"The idea of shifting one dollar away from income tax and putting that one dollar toward a sales tax means that you're asking even more from poor and middle-income families," said Meg Wiehe, the institute's policy director.
Governor Pat McCrory's budget director Art Pope says he agrees with that point. But the governor has said he wants to reduce income taxes - he just hasn't given specific yet.