Despite the bizarre virtue signaling by a few rich CEOs on cable news to pay more in taxes, the vast majority of Americans don’t like having their pockets emptied by the government. A lower tax climate is an American tradition. The liberal economist John Kenneth Galbraith once wrote, “The American colonies, all know, were greatly opposed to taxation without representation. They were also, a less celebrated quality, equally opposed to taxation with representation.” Fortunately, over the past decade, a lower tax climate and culture is becoming more ingrained in North Carolina. Still, more can and should be done to lower taxes for all.
For 2021, the state ranking is 10th for best business tax climate by the Tax Foundation. Less than a decade ago, North Carolina ranked in the bottom 10 as seventh-worst in the nation. Liberal tax and spend policies of other states, particularly in the Northeast, are a motivating factor for many relocating to North Carolina to take advantage of improved employment opportunities and affordable living. In the past decade, the income tax has been reduced from 7.75% in 2013 to 5.25%, with more income being eligible for exemption. Despite the wailing and gnashing of teeth from many in the media and other predictable special interest groups, North Carolina voters easily approved a state constitutional amendment in 2018 that lowered the percentage of income that can be taxed by the state.
Improvements shouldn’t be halted given that eight states have no personal income tax and New Hampshire only taxes dividend and interest income. After all, in states that do tax income, 16 still have lower rates than North Carolina.
While society is more partisan today than easily in over a century, the evidence that tax cuts improve the economy is so overwhelming it’s becoming less controversial. Even some blue states have made modest reductions in tax rates. Yet, economic improvement by itself shouldn’t be the main motivator for cutting taxes. Allowing for more in our state to fully benefit from the fruits of their labor is always the morally right thing to do. In his autobiography, Calvin Coolidge, our 30th president, offered up this timeless observation: “When I went around with my father [who was a tax collector] I realized people had to work to earn money to pay those taxes.”
Furthermore, regressive taxes like the sales and gas tax fall disproportionately on lower–income citizens. They end up coughing up a much higher percentage of their take–home pay. North Carolina has one of the highest gas tax rates in the Southeast and the 13th highest in the nation. When coupled with the 18-cent federal gas tax, 55 cents of every gallon of unleaded gasoline goes to taxes. Lawmakers would be wise to look at further prioritizing spending so more regressive taxes can be alleviated on lower-income North Carolinians. They are too often punished the most by governments that are unable to restrain spending.
Ultimately, people have to ask themselves if they trust the government to grow the economy and alleviate poverty, or do they trust a free-market economy? Republicans in the General Assembly should be lauded for the progress they have made on spending restraint and tax cuts, yet if other states can have lower gas and income tax rates, so can North Carolina.
One of the most important tasks of politicians is to orient government toward its basic purpose of protecting natural rights. That purpose is protecting “life, liberty, and property,” to echo John Locke. Tax cuts, which promote human freedom and flourishing, are one of the very best ways to accomplish that.
Ray Nothstine is Carolina Journal opinion editor.
This piece originally appeared in the March print issue of Carolina Journal.
This article was corrected to reflect that Tennessee no longer taxes dividends.