RALEIGH, N.C. — The poorest 20 percent of North Carolina households pay 3.6 percent more of their income in state taxes than do the richest one percent, a new study says.
With average household incomes of $10,000, North Carolina’s bottom 20 percent pay 10.7 percent of their income in state and local taxes.
That compares to only 7.1 percent of the income of the state’s wealthiest one percent of households, which have average incomes of $970,000, says the study from the North Carolina Budget and Tax Center.
“As a whole, North Carolina’s tax system is regressive, meaning it makes low-income families pay more of their income in taxes than wealthy people do,” author Meg Gray, a policy analyst for center, says in a statement.
Additional disparities highlighted by the report include the type of tax that affects each group the most, and the effect of federal income tax deductions.
Sales and excise taxes account for the majority of taxes paid by the poorest 40 percent, while the wealthiest 20 percent pay more in income taxes.
The center says improving tax fairness would improve North Carolina’s revenue system as a whole.
Wealthy taxpayers, who are more likely to itemize their filings, benefit disproportionately from federal tax deductions for state income and property tax.
“The wealthiest people have the fastest-growing incomes, but the tax system primarily targets working families who have seen their wages stagnate and have the least ability to pay,” says Gray. “North Carolina’s budget problems will only get worse as the gap between the rich and poor widens in America, unless the legislature makes some key policy changes.”
Changes proposed by the study include increasing North Carolina’s refundable earned income tax credit for low-income workers and expanding sales tax coverage in order to reduce the overall rate.
The report also suggested a refundable “circuit-breaker” credit would help low-income homeowners and renters offset some property taxes.
The N.C. Budget and Tax Center is a project of the Raleigh-based N.C. Justice Center, which specializes in government budget and tax issues statewide, with a particular focus on impact to middle- and low-income families.