By Dr. Mike Walden
I need to remind you I’m an economist. I say this so I don’t shock you with my next statement. One of the publications I eagerly look forward to each year is titled Facts and Figures: How Does Your State Compare? It’s published by a Washington think tank called the Tax Foundation. It’s a wonderful book because it gives updated numbers for each state on a variety of tax information.
If you collect several years of the Tax Foundation’s Facts and Figures – as I have – they allow you to compare how a state’s taxes have changed over time – both in looking at the state itself as well as compared to other states.
So, let’s delve in to some tax facts for North Carolina. For examining trends, I’ll compare the latest data – usually for 2017 – to 2010, which was the first year after the Great Recession.
First is the big picture. In 2017, North Carolina ranked 41st highest among states in state public revenue per capita (per person). Most of this revenue is from taxes, but some is also from fees and licenses. In 2010 the state’s ranking was 39th highest.
However, in terms of actual dollars paid, the North Carolina state tax bill per person was $4635 in 2010 and $5178 in 2017. Although this was an increase of 11.7 percent, the hike in the tax bill was less than the 12.3 percent increase in average prices in the economy over the same time period – also called inflation. So in terms of “constant purchasing power dollars” (say that ten times!), North Carolina’s per person tax bill fell from 2010 to 2017.
If local North Carolina taxes are added to the state tax bill, the results are slightly different. North Carolina’s ranking of state and local taxes per capita did drop relative to other states. But in terms of the dollar amount, the combined state and local tax bill in North Carolina rose, even after adjusting for inflation. This means the reduction in tax taxes – after accounting for inflation – at the state level was partially offset by increases in local taxes.
Now let’s bore down to the kinds of taxes North Carolina uses, how they have changed and how the changes compare to other states. Here I will use state and local taxes combined.
In 2016 (latest year available for the state and local taxes together), about 30 percent of North Carolina’s tax revenues were from the individual income tax, one-fourth came from the general sales tax, another one-fourth was raised by the property tax, and the rest originated from a variety of smaller taxes and fees.
Compared to the average of all states, North Carolina raises relatively more from the individual income and general sales taxes and takes in relatively less from the property and corporate income taxes, as well as from other taxes and fees.
Some of these differences have gotten larger this decade. In 2010 North Carolina’s income tax on corporations was higher than the national average for states. By 2016 it was lower, and the rate is now among the lowest for states that have a corporate income tax. The difference was made up by increasing the share of public revenues from the individual income and sales taxes.
This shift was part of a strategy to make the state more attractive to businesses by lowering the tax burden on corporations. The statistics do show that since 2010 North Carolina has added payroll jobs at a faster rate than the nation. Of course, the question is always, why? Was it due to the lower corporate tax rate or other factors?
There’s one tax most of us pay at least every week that I haven’t discussed. This is the gas tax we’re charged as we fill up at the pump. Most states – including North Carolina – put these revenues in a separate account apart from other tax revenues.
North Carolina’s gas tax per gallon rose from 11.8 cents per gallon in 2010 to 18.05 cents per gallon in 2019, an increase much, much faster than general inflation. In terms of North Carolina’s ranking among the states, North Carolina’s gas tax rate rose from 14th highest in 2010 to 13th highest today.
There are two major factors behind the big jump in our gas tax. The first is affecting all states, and it is the shrinkage of the gas tax base. As vehicle fuel efficiency has improved, cars and trucks are able to drive more miles per gallon of gas. Of course, more miles driven generates more wear and tear on our roads and the need for more road spending. But with every gallon of gas translating to more miles driven, the gas tax rate has needed to rise to provide the same revenue.
The second factor is unique to North Carolina and a few other states. It is that North Carolina doesn’t use other taxes – such as property and general sales taxes – that many states tap to supplement their gas tax money. Of the revenues generated in North Carolina for transportation, 55 percent comes from the gas tax. The remainder comes from license and registration fees and a special tax on vehicle sales.
I’ll let you decide if North Carolina has both the correct levels and kinds taxes revealed in the annual Facts and Figures. But before I close, I do want to add another personal note. Besides Facts and Figures, I do anxiously await each year the new John Grisham legal thriller!
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.