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Daily Journal: Are taxes fair in North Carolina

John Hood writes for Carolina Journal’s Daily Journal:

Wealthy North Carolinians pay a higher share of their incomes in taxes than do middle-income North Carolinians, who in turn have a higher effective tax rate than the poor.

For the sake of argument, I’m using calculations from the Institute for Taxation and Economic Policy (ITEP), a left-wing group. They show that the poorest 20 percent of North Carolina families pay 9.2 percent of their incomes in state and local taxes. The second-lowest quintile also pays 9.2 percent, the middle quartile pays 9.5 percent, and the next quintile pays 9.3 percent.

As for the highest-income quintile of families, their effective tax burden averages about 8.5 percent. Leaving federal taxes out of the picture, then, North Carolina’s tax code is roughly proportional across most income levels, but dips somewhat regressive at the upper end.

That’s not the end of the story, however — not by any means. We are all federal taxpayers, too, directly or indirectly. Even if we set aside federal spending for the moment, federal revenues funded about 28 percent of our state budget last year. It would be silly to talk about tax fairness in North Carolina while ignoring federal taxes.

I’ll use ITEP as my source, again. According to its latest estimates, which include the effects of the 2017 federal tax bill, the poorest quintile of American households will pay 4.1 percent of their incomes in federal taxes (remember that payroll, excise, and other federal taxes hit the poor even if they have no income-tax liability). Effective federal tax burdens will be 9.2 percent for the next-lowest quintile, 14.2 percent for middle-income households, 17.8 percent for the fourth quintile, and 19.7 percent for the highest-income-earners.

Although the data on North Carolina’s state and local tax burdens aren’t of such a recent vintage, we can reasonably estimate that when all taxes are combined, our effective tax rates would look something like this, from lowest to highest quintile by income: 13.3 percent, 18.4 percent, 23.7 percent, 27.1 percent, and 28.2 percent.

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