Stein mimics Cooper’s misleading talk about freezing tax rates

Most classic rock fans know the line: “Meet the new boss — same as the old boss.”

The Who’s memorable words recently came to mind as I listened to North Carolina’s new governor. He was parroting his predecessor’s plan to freeze state tax rates.

North Carolina’s flat individual income tax rate dropped from 4.75% in 2023 to 4.5% last year. Current state law calls for the rate to drop again to 4.25% this year, with another cut to 3.99% in 2026.

Meanwhile, the corporate tax rate dropped from 2.5% to 2.25% on Jan. 1. Current law calls for corporate income taxes to disappear by 2030.

Gov. Josh Stein wants to block that tax relief. In public remarks and budget documents, he calls for holding tax rates at current levels. Stein labels his plan a tax freeze.

Since lower rates are written in North Carolina’s statutes, the governor would achieve his goal only if legislators vote to reverse rate reductions. In other words, lawmakers would have to raise taxes.

It’s not a new idea. Stein’s predecessor, fellow Democrat Roy Cooper, used the same language when trying to block tax cuts in 2023.

Having signed a state budget in November 2021 that lowered tax rates, Cooper attempted to walk back rate cuts less than two years later.

Cooper’s proposed freeze prompted an interesting exchange on social media.

“This is the tax rate under current law,” a legislative staffer wrote in March 2023. “@RoyCooperNC signed that law. The Governor’s budget changes that law in order to take more money from taxpayers to give it to the state. For people who don’t live in a fantasy land, we call that a tax increase.”

A Cooper spokesman responded.

“If there’s any body on earth that has proven that things aren’t real until they happen, it’s the NC General Assembly,” he wrote. “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.”

“We” meant the Cooper team in 2023. Now Stein apparently agrees. He echoes the previous governor’s critique of tax rate cuts for “big business/wealthy people.”

Yet an across-the-board rate cut helps everyone who pays income tax. Combine rate cuts with recent increases in the standard deduction, and tax code changes Cooper signed into law in November 2021 have reduced tax burdens substantially for those with lower incomes.

A married couple in North Carolina can claim a standard deduction of $25,500. Add two children to the mix, and families earning up to $40,000 can deduct another $6,000. In other words, a family in that income bracket owes no state income tax on the first $31,500 of income.

A family making $50,000 (with a per-child tax deduction of $2,500) owes $877 in state taxes with no other tax breaks. That’s an effective state tax rate of 1.75%. A family earning twice as much income — $100,000 — can claim $1,500 per child. Its state tax bill totals $3,217. Its effective tax rate is 3.2%.

Note the family with twice as much income owes 3.7 times as much in taxes.

The state child tax deduction is unavailable for families earning more than $140,000. So a family making $200,000 and taking a standard deduction owes $7,852 in state income taxes. Earning four times as much income as the $50,000 household, this family owes nearly nine times as much in taxes.

How about a household with an income of $1 million? The state income tax bill would hit $43,852. With an income 20 times as high as the $50,000 household, the million-dollar household owes 50 times as much tax.

Dropping the rate to 4.25% leads to the following changes: the $50,000 household owes $828 (saving $49); the $100,000 household owes $3,038 (saving $179); the $200,000 household owes $7,416 (saving $436); and the $1 million household owes $41,416 (saving $2,436).

Yes, those with larger incomes see larger dollar savings. Yet the $1 million household still owes 50 times as much as the $50,000 household (with 20 times as much income).

Add the four families’ tax bills together, and the $1 million household covers 79% of the cost, with the $200,000 household picking up 14%, the $100,000 household paying 6%, and the $50,000 household covering less than 2%.

Our new governor might dislike across-the-board rate cuts. He might believe state government spends money more wisely than families.

But his lines about “freezing” tax rates obscure the true picture. Those who’ve heard his argument might want to quote the Who: “We won’t get fooled again.”

Mitch Kokai is senior political analyst for the John Locke Foundation.