He seems to be rejecting the flat tax.
Cooper’s response to last week’s state Senate budget included criticism of the senators’ tax proposals. The governor wants “tax cuts for those who need them, not tax breaks for companies and individuals who earn more than $ 200,000 a year,” he said in a prepared statement on June 21.
A cynic could read the governor’s words and conclude that Cooper is only throwing up familiar party lines. If you look through the reports of the NC State’s recent budget debates, it is easy to find the Democrats’ frequent objections to tax cuts for “business and the rich”.
But let’s assume for now that the governor is making more than a calculated plea for his political base. Let’s say it’s legitimate against tax cuts targeting taxpayers with annual incomes of $ 200,000 or more.
If so, there is one glaring flaw in his statement: Nothing in the Senate’s tax plan targets people who earn more than $ 200,000.
Yes, taxpayers with this income level would enjoy tax cuts under the Senate plan. But these tax cuts would be based on guidelines that apply to any other taxpayer owing NC income tax. To distinguish taxpayers earning more than $ 200,000, the basic structure of North Carolina tax law would need to be changed.
This would abolish the flat-rate income tax.
The Senate’s proposal on income tax contains three key elements: a tax cut, a higher standard deduction, and an increase in the child tax deduction.
Among the three, child tax withholding has absolutely no impact on taxpayers who earn $ 200,000. Applicable law does not provide a per child allowance for single taxpayers earning more than $ 60,000 and married couples earning more than $ 120,000. The Senate would raise these limits to $ 70,000 for single taxpayers and $ 140,000 for married couples.
Taxpayers with an income of $ 200,000 would see no change.
Next there is the standard trigger. It is also known as the zero tax bracket. The standard deduction refers to the amount of income that is exempt from state taxation. Any change to this deduction provides the same dollar amount of tax relief to each taxpayer who makes the deduction.
Current law allows a single taxpayer to deduct $ 10,750. A married couple can deduct twice as much: $ 21,500. The Senate plans to raise those numbers to $ 12,750 and $ 25,500, respectively.
At the current state income tax rate, this would mean an additional tax break of $ 105 for each taxpayer ($ 210 for married couples). Yes, taxpayers with an income of $ 200,000 could qualify for the higher standard withholding. But they do not reap any particular benefit.
Every increase in the standard deduction has a proportionally greater effect on the tax burden on low-wage earners. Senate leaders have estimated that their proposed standard deduction would remove 200,000 North Carolinians from tax lists. None of these taxpayers make $ 200,000.
Without further changes, the higher standard deduction would lower the state income tax bill for a childless couple with an average NC income of $ 54,000 from $ 1,706 to $ 1,496. That’s a 12% tax cut. In contrast, the $ 200,000 childless couple would cut their tax bill from $ 9,371 to $ 9,161 (a 2% decrease).
Under current law, the $ 200,000 couple owe 5.5 times as much tax as the $ 54,000 couple. The increased standard deduction would force the $ 200,000 couple to pay more than six times the middle-income couple.
Nothing about this change gives the $ 200 budget any special time out.
The final part of the Senate’s income tax plan involves a tax cut. Senators would immediately cut the current flat rate from 5.25% to 4.99%. By 2026, the rate is expected to drop to 3.99%.
Yes, taxpayers with an income of $ 200,000 would experience a tax cut along with any other taxpayer. Yes, a rate cut means those with higher incomes would get greater tax break in US dollars than those with lower incomes. However, the combination of the higher standard deduction with the tax cut means that low earners have a greater proportional impact on their tax burden.
If you look at our two pairs above, the $ 54,000 budget would instantly lower its tax burden to $ 1,422, an overall decrease of 17%. The $ 200,000 budget would face a tax burden of $ 8,707, an overall cut of 7%.
Add two children to each household and the gain for the average family would be much greater. The current deduction of $ 2,000 per child would grow to $ 2,500. This means that the household’s tax bill of $ 54,000 would be $ 1,172. Since the $ 200,000 household does not enjoy a state child tax deduction, its bill would remain unchanged. With an income 3.7 times the average household’s income, the $ 200,000 household would owe 7.4 times as much taxes.
But the governor and his allies are trying to paint a different picture. They imply that the Senate plan will provide special breaks for those earning $ 200,000 or more. Follow Cooper’s comments on their logical conclusion, and those who make more than $ 200,000 “deserve” to pay a higher income tax rate than anyone else.
If Cooper wants that, he refuses the flat tax. He should be aware of this. It was supposed to refute years of scientific research promoting the benefits of a flat tax.
And he should explain why his system would be better than a Senate plan that gives everyone tax breaks.
Mitch Kokai is the lead political analyst for the John Locke Foundation. Republished by CarolinaJournal.com