Lawmakers and political pundits around Raleigh are fond of discussing the issue of who is paying their “fair share” of taxes in North Carolina. Such rhetoric raises the inevitable question: who is paying taxes in North Carolina?
Top Revenue Sources
For starters, we can examine the primary sources of General Fund tax revenue for FY2007. As shown in chart 1, North Carolina relies heavily on the individual income tax for its revenue:
• Fifty-six percent of tax revenues are generated by the state’s progressive income tax structure. Comparatively, the U.S. average for individual income tax revenue as a share of state tax revenue for 2006 was 34.6 percent.(1)
• The second highest state tax revenue source is the sales and use tax; which contributes 26.5 percent of General Fund tax revenue.
• Coming in third is the combined revenue from the corporate and franchise taxes, totaling 10.2 percent of tax revenues.
Income Tax Revenue Shares
Now that we’ve established that North Carolina generates the majority of its tax revenue from the individual income tax, let’s examine who is paying income taxes in the Tar Heel State. Chart 2 reveals some telling data:
• The top 17 percent of income earners account for roughly 70 percent of individual income taxes paid. In short, about one-sixth of taxpayers shoulder more than two-thirds of the individual income tax burden for North Carolina.
• Conversely, the bottom 65 percent of income earners contribute only 12 percent to the income tax pie.(2)
Top Income Tax Payers Shoulder Disproportionate Share of Total Budget
• The top 1.6 percent of income earners in 2005 paid more than $2.5 billion in state income taxes, an amount equal to roughly one-sixth of all General Fund tax revenues for that year.
• In contrast, the bottom 51.3 percent of tax filers in 2005 collectively paid a total of $439 million in income taxes – or only about 3 percent of all General Fund tax revenues.
For more information, contact Brian Balfour, policy analyst, at firstname.lastname@example.org, or 919-834-2099.
1. Property taxes in North Carolina are collected by local governments; therefore do not appear in these calculations.
2. These data were computed by return, so individual and joint returns – as well as business entities that file individual returns – are all included together in the comparison. This should not distort, however, the general conclusions drawn.