North Carolina’s 2013 tax reforms, instead of being a “huge windfall” for the rich as the Left claimed, in fact resulted in high-income households paying a higher share of state income taxes, while middle- and low-income families ended up paying a smaller share.
Left-wing critics have long complained that a move to a lower, flat income tax rate, as featured in the historic 2013 tax reforms, would “shift taxes from the wealthy onto others.”
But data shows that years after its implementation, the only filers whose share of the state’s total personal income tax burden increased were the state’s top earners.
In 2013, the last year before the tax reforms, filers earning $200,000 and above paid 28.3 percent of state income taxes. By 2017 (the latest year data is available), that share rose to 33.5 percent.[i] This category represented 3.1 percent of tax filers in 2017.
Similarly, those filers earning between $100,000 and $200,000 saw their share of the total income tax burden rise from 20.3 percent to 21.4 percent.
Conversely, not only did “middle-class” taxpayers (earning between $25,000 and $100,000)[ii] pay a lower share of income taxes after the reforms, the lowest income earners (under $25,000) likewise paid a smaller share.
The middle class’ share of the state’s total tax burden fell from 41.4 percent to 36.6 percent.
Meanwhile, the lowest income earners saw their share fall from 10 percent to 8.5 percent. This category represented 62.5 percent of tax filers.
So much for the narrative that the income tax cuts shifted the income tax burden on to the backs of the middle and lower classes.
Rising Incomes a Strong Driver of Changes
The rise in the share of the total income tax burden paid by the state’s wealthiest filers was driven largely by an increase in the number of filers earning above $200,000, which climbed by 71 percent – or roughly 61,000 people.
The ranks of middle-income earners ($25,001 – $100,000) also swelled by about 13 percent, seeing a gain of more than 173,000 filers during that time.
The number of low-income filers – those with income less than $25,000 – dropped by more than 12,000, for a decrease of about ½ of a percent.
In short, even as North Carolina’s population grew, the number of people earning less than $25,000 dropped slightly, while middle and upper income earners increased. This is a positive sign for the state’s economy, representing steady wage growth.
2017 also saw an overall net increase of about 320,000 North Carolina state tax filers compared to 2013.
These data points reflect the positive trends of North Carolina’s economy, bolstered by the tax cuts. A decrease in low-income earners signifies positive income gains by low-skilled workers, while the increase in new filers mostly represents a growing workforce, but also the fact that North Carolina is an attractive destination for job creators and productive workers.
To sum up, this data strongly contradicts claims by critics that the personal income tax rate changes would force middle- and lower-income filers to shoulder more of the state’s tax burden.
[i] Source: Office of the State Controller, North Carolina Comprehensive Annual Financial Reports from 2015 and 2019. Available online at:
https://www.osc.nc.gov/public-information/reports/report-archives/cafr-and-popular-report-archives
[ii] The income thresholds were chosen as they matched the available data from the CAFR; also because in the previous income tax code the highest marginal tax rate of 7.75% kicked in at $100,000 for married filers filing jointly. This seemed to be a compelling reason to classify $100,000 and up as the top income earners for this analysis.
