Governor Roy Cooper’s new proposed budget for fiscal years 2023-2025 is a tone-deaf proposal for North Carolina’s tax code. Instead of continuing with the tax decreases that were already signed into law in a previous budget, Cooper is proposing that we freeze the tax rate at the current 4.75%. Cooper’s reasoning is that further tax cuts would only benefit the wealthy and corporations. But tax rates are a top factor in state population growth as well as for attracting incoming businesses, so this proposed tax hike will not help current N.C. citizens or keep N.C. competitive as compared to other Southern states.
One of Benjamin Franklin’s more famous quips is, “…in this world, nothing is certain except death and taxes.” But that doesn’t stop Americans from trying their hardest to escape one (or both) of those certainties. In an Axios-Ipsos poll, 28% of Americans considering a move to another state said that taxes were their highest consideration; other top considerations were cost of living and jobs — both of which are closely related to tax rates.
According to the Tax Foundation, in 2022, internal migration in the United States overwhelmingly went from high-tax to low-tax states. While the overall U.S. population grew 0.4% between July 2021 and July 2022, New York, with a top tax rate of 10.9%, lost 0.9% of its population. Hawaii, with a top rate of 11%, lost 0.5% of its population. Meanwhile, Florida and Texas, at individual income tax rates of 0%, increased their populations by an astounding 1.9% and 1.6%, respectively.
So why shoot ourselves in the foot?
In light of this, it is bewildering that Cooper proposed a budget for the state that freezes tax rates at their current rate of 4.75%. This proposal would negate the previously enacted budget provision to decrease the tax rate from 5.25% in 2021 to 3.99% by 2027. By undoing tax cuts and not directly raising them, Cooper is trying to avoid the claim that he is raising taxes. But by undoing cuts that are already in the law, the merits of his claim are dubious.
In Cooper’s desire to raise tax rates, he is seeking to leave North Carolina firmly in the middle of the pack as compared to other states’ tax rates. Leading from the middle is not the way to come out on top.
When comparing the data for the top 10 states for inbound and outbound migration with the data for high- and low-tax states, an interesting trend is revealed. The top 10 states for incoming migration have an average top tax rate of 3.015%, while the top 10 states for outgoing migration have an average top tax rate of 8.4%. The tables below list the top inbound and outbound states alongside their respective highest tax rate.
|Top 10 Inbound||Top 10 Outbound|
If North Carolina wants to remain competitive and attract new businesses, having a tax rate that is over 150% of the average is not wise. When competing with Florida, Texas, Tennessee, and other non-Southern states with 0% rates, Cooper’s tax increase would hurt North Carolina’s competitiveness.
Unfortunately, it seems that all of this information falls on deaf ears within Gov. Cooper’s administration. The Cooper administration is ignoring that their proposed budget would make North Carolina less appealing to both businesses and consumers and is instead going along with the idea that all that truly matters is sticking it to the rich.
Ford Porter, Cooper’s communications director, said of Republicans criticizing the tax increase, “North Carolina taxes currently are what they currently are. We don’t think they should increase. We also don’t think big business/wealthy people need more breaks.”
Setting aside the questionable argument that canceling rate cuts that are already signed into law is not raising taxes, which Mitch Kokai has already addressed here, there is also the dumbfounding argument that cutting a flat tax rate only benefits wealthy taxpayers.
To deny tax cuts to every North Carolinian in order to keep from benefiting the wealthy seems to make the same amount of sense as rejecting a raise at your job simply because your colleague with a higher salary would also receive a raise of the same percentage. Certainly, he would receive more in absolute dollars, but it is nonsensical to deny yourself the raise because someone else would benefit more.
This is especially true in a period of inflation. For the average citizen who is seeing year-over-year total inflation of 5%, according to CNBC — including a 10.2% increase in the price of electricity and 8.5% increase in general food costs — any cut in taxes is sure to be a welcome relief.
When North Carolinians are being forced to cut their budgets in order to compensate for rising prices, the state should not turn around and deny them the tax cuts that have already been promised, especially when states like Florida and Tennessee already have us beat.