The Institute on Taxation and Economic Policy (ITEP) just released its latest state-by-state analysis of tax code fairness. The upshot? It’s virtually guaranteed that the less money your family earns, the greater the share of your income you’ll pay in state and local taxes.
According to ITEP, “almost every state tax system takes a greater share of income from low- and middle-income families.”[i] This is especially true for a state like Texas – while they’re known for being low-tax states, they put a significant tax burden on their low- and middle-income families. The ITEP Tax Inequality Index ranks Texas as having the third most unfair state and local tax system in the country, with the poorest 20 percent of Texans paying a 5x larger share of their income than the top 1 percent.[ii]
North Carolina has the 31st most unfair state and local tax system in the U.S, well behind Texas and Kansas, but ahead of states like Virginia and South Carolina.[iii]
ITEP notes North Carolina’s more progressive tax features, like the targeted child tax credit and the grocery exclusion for our state sales tax. However, they also flag the regressive aspects of North Carolina’s tax code:
- Personal income tax uses a flat rate
- Comparatively high state and local sales tax rates
- Local sales tax bases include groceries
- Fails to provide refundable Earned Income Tax Credit (EITC) since credit was eliminated in 2013
- Fails to provide a property tax “circuit breaker” credit for low-income taxpayers
- Child Tax Credit is nonrefundable
Most of the 2013 and 2014 tax changes, like cutting the corporate income tax rate and eliminating the state Earned Income Tax Credit, also made North Carolina’s tax code more regressive.