Is a state income tax cap sensible?

Constitutional Amendments on November Ballot

Voters will be asked to approve a constitutional amendment during midterm voting in November that will cap the individual income tax rate a 3.5%.  Doesn’t that sound like a sensible tax change?  What are the repercussions?

North Carolina charges a single flat rate on individual income:

Tax Year 2026: 3.99%

Tax Year 2025: 4.25%

Key Context:

Flat Tax System: Everyone pays the same percentage on state taxable income, regardless of income level.

Applicability: The rate applies to your North Carolina taxable income (your Federal AGI after state-specific deductions and adjustments), not your gross pay.

Scheduled Drops: Under Session Law 2023-134, the state income tax rate has been incrementally reduced over recent years (down from 4.75% in 2023 and 4.5% in 2024).

NC Income Taxes Compared To Other States:

North Carolina's individual income tax structure is one of the lowest among states that levy a personal income tax.

Flat Rate System: North Carolina uses a flat tax rate of 3.99%. This contrasts with most states that use progressive tax brackets (where higher earners pay higher rates, up to 13.3% in California or 10.9% in New York).

How NC ranks vs. Income Tax States: 

Among the 41 states that levy a broad-based personal income tax, North Carolina’s flat rate is near the bottom end.

Our rate is higher than the nine states with no personal income tax on earned wages (such as Florida, Texas, Tennessee, Washington, and Nevada).

A Perspective on this Tax Proposal

• Voter approval of this constitutional amendment will make the 3.5% cap difficult to repeal.  In the future under this new tax scenario, the  legislature would find it extremely difficult to raise the tax rate. The Governor cannot veto a constitutional amendment.

• Republican legislators have openly expressed a desire to eventually get income taxes down to zero.

• If the legislature continues to shrink tax collection revenues by lowering rates, how does North Carolina generate the revenue necessary to fund maintenance and expansion of critical services?  (Roads, fire and related emergency services, police and other public safety organizations, schools, hospitals, airports are just a few of many examples.) Under the current administration in Washington, it is apparent that much of the traditional support of the states will diminish and even disappear.  Under the 2017 tax cut and last year’s OBBB , the transfer of wealth to the billionaire class from the rest of us was accompanied by cuts to major programs that under gird much of the middle class and working class growth toward prosperity over the past 85 years. Financial support from Washington for Medicaid (and now it looks like parts of Medicare), ACA, SNAP, FEMA and many other federal programs are being rapidly shifted to the states.   In the short term, North Carolina has dipped into its reserves to shore up some of these programs.  But, that is not a long-term or even medium-term solution.  How can we continue to support our quality of life AND embrace significant cuts to our income tax revenues? How can we continue to pay into our reserves with lower income tax rates? It is inevitable that North Carolina will not be able to sustain long term investments in the state operating budget while losing federal support and cratering our own tax base.

• Sales and consumption taxes are the most likely way to raise tax revenue to offset revenue lost from a cap on the income tax rate.  Sales and consumption taxes will fall most heavily on lower-income residents.

Conclusion

Simply put, this is yet another attempt to shift yet more wealth from the middle class to the top 1%.  

The Republican legislators are concerned that their nominee for the senatorial seat is not generating much enthusiasm.  The war in Iran and the economy are also causing Republican voter angst.  So, these tax measures are the Republicans’ bait to lure reluctant voters to the polls in November.  (They, in their arrogance, seem to ignore the impact of these tax policies on their own voter base.  Again, they focus on their largest donors to the detriment of the bulk of their voters.) 

Action Plan

As always, we have our voice and our vote.  We need to share our understanding of the real impact of further reducing the flat income tax basis to 3.5% with neighbors and friends, regardless of political affiliation.  As we canvas and phone bank, please share these new additions to our November ballot with a strong recommendation to vote “NO”.  Please remind our fellow voters that Tim Moffitt, Jennifer Balkcom and Jake Johnson all voted in favor of this amendment.

Joe Elliott, ejoe2397@gmail.com