Over 60 percent of North Carolina oppose the elimination of corporate income tax. In fact, most North Carolinians want to see profitable businesses contribute what they need to ensure that we can fund a better future for people across our state.
As the final state budget draws to a close, legislative leaders and the governor should listen to the people and maintain an income tax on corporate profits, to ensure a fair recovery from this pandemic and to strengthen long-term community health.
But will North Carolina’s policymakers listen to the people and plan for the future, or will they continue to legislate for the powerful few and lock future generations into a model of governance that holds North Carolina back?
Here’s the reality of who will benefit and who will be hurt if policymakers refuse to choose a better future for North Carolina:
Who benefits from the elimination of corporate tax? Eliminating corporate income tax would send the vast majority of the $ 900 million annual tax break to out-of-state shareholders. Estimates suggest that less than 20 percent of the reduction in the corporate tax rate would stay with residents. Of that small number of shareholders in North Carolina, 69% of the next tax cut will go to the richest 20% of taxpayers.
The vast majority of profitable corporations that will benefit will be crown corporations. 68% of corporate tax paid in North Carolina comes from large corporations that derive less than 25% of their income from North Carolina. These companies do not pay income tax based on payroll or property in North Carolina – just sales – so further rate cuts give them no additional incentive to grow or create more jobs. here. It also does not encourage them to move existing jobs and facilities out of state to North Carolina; the vast majority of other states also tax corporations only in proportion to their sales, so their tax liability to those states does not change if they move here. Such movements are rare, in any case.
This is also the reason why corporate tax cuts do not lead to economic growth. As research has shown, the impact of tax cuts on business investment would not only be small, but it would take years to take full effect. Even with a very sharp reduction in total state and local taxes paid by businesses, see even a small de minimis change in economic production and employment, North Carolina is expected to hold constant public investments in schools, infrastructure and other public goods upon which private businesses depend – which will be very difficult to accomplish if the corporations is eliminated.
Who is affected by the elimination of corporate income tax? Eliminating corporate taxes would reduce government revenues by about $ 900 million per year. These are dollars that would not be available to support public schools, public health, and other public goods that ensure people and communities are doing well and that businesses have the well-trained workers and good roads they need. need.
- Children: State failure to adhere to the Leandro funding plan for Early Childhood and Kindergarten to Grade 12 education would be at serious risk in the years to come when funding needs to support a solid basic education in North Carolina will increase when the tax cuts are scheduled to take effect.
- Small local businesses: The reality is that few businesses pay corporate tax because they choose to organize differently, are unprofitable or take advantage of numerous tax loopholes and use tax avoidance strategies. Without public money to invest in technical assistance, access to capital, and other supports for local small businesses, North Carolina’s growth model does not create wealth locally.
When businesses don’t pay their share, the lack of revenue would mean cuts to public institutions that support a good quality of life in North Carolina – unless the revenue is offset in other, less equitable means. To make up for lost revenue from all of the proposed income tax cuts, it would take more than doubling the current sales tax rate, which would put more taxes on the backs of North Carolina residents instead. companies.
Everyone in North Carolina is ultimately hurt by the short-sighted decision to prioritize the interests of powerful and profitable corporations over the inhabitants of our state today and future generations.
Alexandra Forter Sirota is director of the Budget & Tax Center, a project of the NC Justice Center.