- Article attempts to scare people into voting against the tax cap amendment
- Author gets even the most basic facts wrong
- Recommendation to “tax the rich” is based on faulty assumptions
If you want an unconvincing case why North Carolinians should vote no on the tax cap amendment read Want to Hurt the Public Schools? Cut the Income Tax Cap. The article, written by Leah Abrams of the Southern Poverty Law Center, appeared in the Raleigh News and Observer. Simply stated, the piece displays a lack of understanding of how North Carolina public schools are funded and conveniently ignores some inconvenient facts.
According to Abrams, North Carolina’s biggest sin is its regressive income tax. Currently, all North Carolinians pay an income tax of 5.49 percent on all taxable income. Because the tax falls disproportionately harder on lower income earners — all taxpayers pay the same percentage of income, whether you’re a checkout clerk or a CEO — the tax is called regressive by people like Abrams.
However, Abrams overlooks the significant standard deduction for taxpayers written into law. This deduction means that earned income up to $17,500 for married filers and $8,750 for single filers is tax free. This also means the effective tax rate has some progressivity built in – exempting many low-income earners completely or significantly from any tax burden at all. Contrary to Abrams’ claim, the checkout clerk and CEO are indeed not paying the same rate.
Such a significant oversight – combined with her faulty labeling of public education as the state’s “second highest budget expenditure” (it’s the highest) – casts Abrams’ authority on this topic into serious doubt. If she can’t even get such basic facts straight, why should anyone take her recommendations seriously?
“Tax the Rich” Not the Answer
Undaunted by her ignorance, Abrams proceeds to state that North Carolina should implement new, higher tax rates on higher income earners, like we had for many years prior to 2013. Abrams says the additional money collected from these new tax brackets should be used to increase money for schools and other public services. In fact, Abrams cites higher tax brackets (13 percent) in New Jersey and California as the reason why those states’ educational systems are ranked higher than North Carolina.
Claiming money is directly correlated to quality in education is a foolish claim to make. Money is not unimportant, but it’s not possible to buy an excellent school system. Of course, Abrams fails to note that high taxes are also the reason why California and New Jersey have such a high rate of out-migration. She also doesn’t stop to consider if a significant share of the people remaining in such high-tax states are wealthy people who can afford to pay the tax – or find ways to avoid paying them. In turn, the children in the school system are more representative of high-income households, which skews the academic results.
North Carolina School Funding More Equitable Than Almost All Other States
But back to North Carolina’s tax on personal income. Abrams says it fails to provide sufficient revenue for the public schools and lowering the tax cap via constitutional amendment will somehow exacerbate the differences between the haves and the have nots, even though it would still allow taxes to rise as high as 7 percent.
This is very muddled thinking. Abrams assumes the existence of a wide variation in public school funding between the haves and the have nots. How unequal is school spending in North Carolina? A recent article on the subject in Governing magazine ranked states by spending variation between districts. North Carolina ranked 47th among the states in spending variation, meaning that school funding is more evenly distributed in all but 3 states.
While differences between districts do remain, Abrams misses some key points. She ignores that North Carolina’s reliance of state funding – and not the property tax – helps to smooth out those differences.
The roots of the current system to finance public education are found in the Depression era. Growing concern about poor counties and disparities in resources and school quality drove the state to take a more active role. Today about two-thirds of all funding for schools in North Carolina comes from state government.
Various programs are at work to reduce local funding differences and assist poorer districts and the populations they serve. These programs include: At-Risk Student Services, Disadvantaged Student Supplemental Funding, Low Wealth Supplemental Funding, Small County Supplemental Funding, and Limited English Proficiency. The programs provide significant financial aid to low-income districts to help address the challenges they face and better serve their populations. Last year these programs provided $745 million to eligible school districts. This should be added to the $1.4 billion in federal aid North Carolina school districts received last year, much of which was directed toward schools serving lower-income and disadvantaged populations.[i]
Abrams, like many others, believes the low-income school districts simply won’t have the money to support good schools. They will be forced to spend less because they lack the financial resources. Poor school districts won’t be able to spend what they need. However, that doesn’t seem to be the case. In fact, the converse is true; Brian Balfour of the Civitas Institute writes:
If any trend can be detected it is that low-income districts tend to receive higher levels of per pupil funding than their higher income colleagues. Many Lower income districts receive additional funding from the state through a variety of formulas designed to bring greater equity to school funding and address some of the challenges of lower income districts.
After compiling data points for income and spending for LEAs in North Carolina Balfour concluded:
there is no correlation in the data backing the claim that low-income counties receive lower levels of per-pupil funding.
Tax Reform Strengthened NC’s Economy, Bolstered Revenues
Abrams also conveniently ignores some relevant economic data. In 2013 North Carolina passed significant tax reform which reduced personal income and corporate taxes. As expected, Progressives predicted economic doom and gloom. It didn’t happen. In fact, North Carolina’s economy is strong and growing. Four of the last five years actual tax revenues have surpassed forecasted revenue. And for the fiscal year just ending, state officials reported $400 million more was collected in revenue than was forecasted. Of that amount, $176 million was due to increases in income taxes over projections. Increased tax revenue is a by-product of increased economic activity and tax reform has certainly helped to spur the economy.
Since 2012, North Carolina’s GDP is up 10.4 percent, over 460,000 jobs have been added. Seasonally adjusted unemployment for June was 4.2 percent. Lower taxes and prudent spending has allowed lawmakers to increase K-12 spending for eight consecutive years and provide teacher raises for five consecutive years. A growing economy lifts all boats.
Do we know if the constitutional amendment will harm public education? We have an answer. In 2014, Georgia approved a tax cap amendment lowering the state tax cap on income to 6 percent. As expected, there has been no fallout from the amendment. Like North Carolina, Georgia retains its “AAA” bond rating. And the state’s economy continues to grow. The average percentage change in real GDP in Georgia since 2014 is 3.1 percent. That rate exceeds the national rate (2.2%), North Carolina’s (2.1%) as well as all the state’s that border the Tar Heel State.[ii] Since 2014, K-12 spending in Georgia has increased $2.5 billion[iii].
Abrams’ article is the classic big government fearmongering that defines Progressive thought. It is based on myths and misinformation and little of it squares with reality. All compelling reasons why we should ignore Abrams’ suggestion. North Carolina taxpayers and schools will thank us for doing so.
[i] For additional information on state and federal school spending in North Carolina see Highlights of the North Carolina Public School Budget, 2018. Published by the North Carolina Department of Public Instruction. Available online at: http://www.ncpublicschools.org/docs/fbs/resources/data/highlights/2018highlights.pdf
[ii] North Carolina Economic Performance Factbook, Published by the Civitas Institute. July 2018
[iii] Georgia K-12 Education Budget Primer for State Fiscal Year 2019, Georgia Budget and Policy Institute. Available online at: https://gbpi.org/2018/georgia-k-12-education-budget-primer-state-fiscal-year-2019/