The North Carolina legislature is now considering three different tax schemes that each increase taxes on poor and middle-class families while lowering taxes for corporations and the wealthiest families.
All three plans would expand the sales tax base and increase tax revenues from consumption. This would increase taxes for everyone but would disproportionately affect poor and middle-class households because they spend a higher proportion of their income on consumption.
All three plans lower taxes on corporate profits. Currently NC's corporate tax rate is close to the median for the country, and the proportion of tax revenue that comes from corporate income is similarly near the middle for the country.
All three plans also adopt flat proportional taxes on personal income that slash tax rates for households that receive more than $100,000 but also make changes that could make more of lower-income and elderly households' income taxable.
Two of the plans also eliminate taxes on multi-million dollar estates. Those same two plans would also require further cuts to government services, which would fall disproportionately on the poor.
Poor and middle-class households have suffered the most from the economic downturn. The Pew Research Center reports that from 2009 to 2011, households in the top 7 percent of the wealth distribution saw their wealth increase by 28 percent, while all other households saw their wealth decline by 4 percent. The Census Bureau reports that the share of income going to the top 20 percent of households passed 51 percent in 2011, up from about 50 percent at the start of the recession. Increasing the tax burden for poor and middle-income households compounds this misery.
Any tax reform is going to increase taxes for some people while reducing them for others. However, there are ways to reform and simplify taxes that are less harmful to the poor. For example, an expansion of the sales tax base could be coupled reductions in the sales tax rate. Reductions in personal income tax deductions and exemptions could be coupled with reductions in all rates, leaving the progressivity of income taxes in place.