Amendments to NC constitution will cost most of us more

North Caroliina’s Republican-dominated legislature will give voters a chance to cap their exposure to income and property taxes come the November mid-terms. While such caps may lower taxes for the rich, for the rest of us it will likely have the opposite effect.

In May, the GOP mustered the three-fifths majority to put two constitutional amendments on the ballot in November. One would cap the state income tax rate at 3.5 percent. The other would require lawmakers to set a limit on the property tax rate counties and municipalities can set to operate local governments. 

It’s not as though North Carolina lawmakers have abused the power of the purse in the past. The state has always been fiscally conservative. So why did lawmakers see a need to hamstring future legislators and local governments?

Especially given that, if approved by voters, the amendments will almost certainly push over more of the cost of government onto the backs of those least able to pay and limit future legislature's ability to respond to changing economic circumstances and revenue needs.

Capping the income and property tax rates carries a lot of curb appeal. Who doesn’t want to pay lower taxes? Except that’s not likely to happen, and if it did, it would mean curtailing or eliminating critical services that North Carolinians rely on and that make the state competitive when it comes to recruiting business and industry.

The money to operate state government must come from somewhere. Corporate and personal income taxes provide the bulk of the state’s General Fund, which finances much of the funding for public education, law enforcement, and services like those that protect public safety and health, recruit and support business and industry, and maintain roads, ferries and other critical infrastructure.

If that money doesn’t come from income taxes, it will come from sales taxes and fees. Notably, lawmakers did not propose an amendment that would cap the sales tax.

The $34 billion budget for the current fiscal cycle legislators finally passed (a year late) and sent to Gov. Josh Stein just before the July 4 weekend contains a perfect example of how lawmakers will make up for income tax shortfalls. The bill would require tolls to travel on NC ferries, which, with a couple of exceptions, now costs nothing.  

Sen. Bobby Hanig, of Powells Point in Currituck County, said the toll could be called a “fee, but it is a tax.”

“No North Carolina citizen should have to pay a toll to ride on a ferry,” the Republican lawmaker said. He was one of two Republicans who voted against the budget because of the ferry tolls.

The ferry system is part of the state’s transportation system. Like state roads, it’s something coastal residents rely on to get to work and to transport goods and services. 

Income taxes, even a flat tax like North Carolina’s, require people to pay a percentage of what they earn, so the more you earn, the more you pay. If the income tax rate is 3.5 percent and you earn $30,000, you pay $1,050. If you earn $200,000, you pay $7,000. Those who benefit most from the state’s economy pay the most to support and maintain it. Those who wait tables and those who travel to and from their second homes will pay the same ferry “tax,” but that’s a much smaller burden for those who earn $200,000 a year than it is for those just getting by on $30,000. 

The other thing state lawmakers are likely to do is push critical services down to the county level. Don’t be fooled by the amendment they’re putting on the ballot requiring them to cap property taxes. They already have the ability to cap property taxes (though they’re not required to). Nothing in the amendment sets a limit on what that cap can be. 

More to the point, what business does a state senator from Buncombe County have capping property taxes in Person County where he is not answerable to local voters and is unlikely to know the issues as intimately as a Person County commissioner will?

Between July 1, 2024 and July 1, 2025, 84,000 people moved to North Carolina from other states. That was the largest gain of domestic migrants of any state during that period. When combined with international migration and natural increase, the state has grown by 757,000 people since April 1, 2020 — an average of about 395 people a day, according to the North Carolina Office of State Budget and Management. That’s one reason the income tax rate in 2027 is set to go from 3.99 percent to 3.49 percent. Those new people add to the tax base.

They also drive up the cost of real estate. The tax property owners pay depends on the rate set by local government and the assessed value of their property. Reassessments must occur every eighth year, but may happen more often. Recent reassessments in some fast-growing counties have justifiably distressed long-time property owners.

 Counties have the option to compensate for higher property values by lowering the tax rate, so the assessment is revenue neutral. But those new residents also put more cars on the road, create demand for water and sewer lines to serve new housing developments, and require more police and fire services and more teachers and classroom space. State and local governments must either meet that demand or infrastructure deteriorates, schools become overcrowded, law enforcement and fire services become inadequate and so forth.

Counties need the flexibility to respond. And there are better ways to protect long-time residents from dramatic increases than by capping the rate, including lower rates for seniors and disabled veterans and setting limits on the amount values can go up until a property changes hands.

Gov. Josh Stein best summed up the income tax cap amendment, which doesn’t require his signature to go on the ballot, when he said it is “a con, a cynical shell game and a millionaire protection cap. …What it will do is make regular people pay the consequences of it next year and years into the future because it will insulate the very wealthy from ever having an increase in their income tax. We have to have a balanced budget every year. When revenues are needed, you know who’s going to have to pay? It’s you. Regular people, every time they go to buy something, through the sales tax.”

For the 2025-2026 budget year, North Carolina’s per pupil spending was $13,680, $5,190 below the national average of $18,870. All those people coming to North Carolina from other states are coming because it’s a great place to live. But how much longer will that be true if we continue to choke our schools and fail to improve and maintain our infrastructure and critical services such as law enforcement and first responders? How much longer will it be true if sales taxes and fees make it so that only the wealthy can enjoy living here?

So why did Republican lawmakers put these amendments on the ballot in November? There are those who believe it was an attempt to get fiscally conservative Republicans, who might be tempted to sit out the mid-terms, to vote. Getting out the vote is a good thing, but here’s hoping all those who vote realize that the fiscally smart thing to do is vote “no” to both these amendments.

Joy Franklin is a journalist and writer who served as editorial page editor of the Asheville Citizen-Times for 10 years. Prior to that she served as executive editor of the Times-News in Hendersonville.