More than 60 percent of North Carolinians are against the abolition of corporation tax. In fact, most North Carolinians want profitable corporations to do their part to ensure we can fund a better future for people across our state.
As the final state budget nears completion, legislative leaders and the governor should listen to the people and maintain an income tax on corporate profits to ensure an equitable recovery from this pandemic and long-term health benefits for communities.
But will North Carolina politicians listen to the people and plan for the future, or will they continue to legislate for the mighty few and bind future generations to a model of government that holds North Carolina back?
Here’s the reality of who will benefit and who will be hurt when policy makers refuse to choose a better future for North Carolina:
Who will benefit from the corporate tax exemption? The corporate tax removal would send most of the $ 900 million annual tax break to non-state shareholders. It is estimated that less than 20 percent of the corporate tax rate cut would stay with residents. Of those few North Carolina shareholders, 69 percent of the next tax cut will go to the wealthiest 20 percent of taxpayers.
The vast majority of profitable companies will come from state-owned companies. 68% of corporate tax paid in North Carolina comes from large corporations that derive less than 25% of their income from NC. These companies do not pay income taxes based on payroll or ownership in NC – sales only – so further reductions in the tax rate do not offer any added incentive to expand or create more jobs here. It also gives them no incentive to relocate existing out-of-state jobs and facilities to North Carolina; the vast majority of other states also only tax corporations proportionally to their sales, so their tax liability towards these states does not change when they move here. Such moves are definitely rare.
This is another reason why corporate tax cuts do not lead to economic growth. Research has shown that not only would the impact of tax cuts on business investment be small, but it would take years to fully take effect. Even with a very large cut in the total state and local taxes paid by corporations, North Carolina would have to make constant public investments in schools, infrastructure, and other public goods to make even a slight change in economic performance and employment. private companies will leave – which will be very difficult to do when corporate tax is abolished.
Who will the abolition of corporation tax harm? The abolition of corporate taxes would reduce government revenues by about $ 900 million annually. These are dollars that are not available to aid public schools, public health services, and other public goods that make sure people and communities are doing well, and that businesses have a well-trained workforce and good roads to feed them to need.
- children: State non-compliance with Leandro’s Early Childhood Education Funding Plan and K-12 would be seriously at risk in the coming years if funding requirements to support a solid basic education in North Carolina are ramped up while tax cuts are planned in effect.
- Small, local businesses: The reality is that not many companies pay corporate income tax because they organize differently, are not profitable, or benefit from many tax loopholes and employ tax avoidance strategies. Without public money to invest in technical assistance, access to capital, and other support for small, local businesses, North Carolina’s growth model will not build local wealth.
If corporations fail to pay their share, the lack of revenue would lead to cuts in public facilities that support the quality of life in North Carolina – unless revenue is met in other, less equitable ways. To make up for the lost revenue from all proposed income tax cuts, it would require more than doubling the current sales tax rate, which would put more taxes on the backs of normal North Carolinians instead of corporations.
All in North Carolina is ultimately hurt by the short-sighted decision to favor the interests of powerful, profitable corporations over the people of our state today and future generations.
Alexandra Forter Sirota is the director of the Budget & Tax Center, a project of the NC Justice Center.