It’s time for a fact-check of North Carolina politics. This week we are looking at a claim made recently by state Rep. Tricia Cotham of Mecklenburg County.
Speaking on WBT radio, Cotham said this while touting tax changes contained in the new state. budget lawmakers passed a few weeks ago.
(Tricia Cotham): “This is going to be the largest cut in their personal income tax that we've ever seen.”
Marshall Terry: Cotham was a longtime Democrat, but earlier this year switched parties and became a Republican. For more on her claim, we turn now to Paul Specht of WRAL.
So for a bit of context here, Cotham was criticizing members of her former party that did not support this budget. What were the Democrats who voted no opposed to?
Paul Specht: Well, there's a lot in the budget that they oppose, starting with new money for the Opportunity Scholarship program. That's a program that gives grants to parents who want to send their kids to private school. And when it comes to tax cuts, when Democrats talk about tax, they talk about how the tax rates are already low and that North Carolina's population is growing, therefore, the state services need to also grow. And they're worried that if there are too many tax cuts, then the state just won't be able to provide the services needed to accommodate all the people moving here.
Terry: Well, what was in the budget as far as personal income taxes go?
Specht: Well, it continues a yearslong effort by Republican legislators to lower the income tax rate. In 2023, the income tax rate was 4.75%. In 2024, it will be 4.5%, and then in 2025 it'll be 4.25%. So you're seeing a theme, there's a quarter of a percentage point step-downs in the coming years.
And then in the budget, it calls for the state to do a half-percentage point cuts — but only if the state meets its revenue goals. That's sort of a catch or a condition that lawmakers included in this budget. What Republicans are really proud of is that if they do meet those revenue goals, the income tax rate could be 2.49% before the end of the decade.
Terry: And what are those revenue goals that have to be met?
Specht: It starts in fiscal year 2025-2026, if in that year they meet the revenue goal of $33 billion, then that will trigger the tax cut for 2027. And then the next year for the fiscal year 2026-2027, if the state reaches $34 billion, then in 2028 it can go down another half of a percentage point. And that continues through the years.
Terry: As part of your reporting, you looked at the income tax rate in North Carolina going back a few decades. How has it changed, and what have been the biggest cuts?
Specht: Between the years 1989 and 2013, the rate ranged from 6% to 8.25%. But then after Republicans took control of the legislature in 2010, they wanted to enact a new flat income tax rate — because the years prior, people paid different income tax rates depending on how much they earned. Well, in 2014, it all went to a flat rate of 5.8%, and that was the biggest one-year cut that we saw. The highest earners in North Carolina saw a drop of almost two percentage points.
And then if we just look at the last 10 years between 2013, when some people were paying 7.75%, and 2023 people are paying 4.75%, that's a drop of three percentage points for some North Carolina taxpayers.
And what the budget does over the next 10 years is potentially lowers it to 2.49. So that's two percentage points. But still, whether we look at the short-term year-over-year cut or the long-term over 10 years, the state budget does not beat, if you will, the short-term or long-term cuts that were set in motion back in 2014.
Terry: So how did you rate this claim, then, by Rep. Tricia Cotham?
Specht: We rated it false. She said the budget includes “the largest cut in our personal income tax that we've ever seen.” We looked at this from multiple angles, as I mentioned — year over year, and then over 10 years, and then different year changes — and we could not find one that was bigger than what we saw happen, or at least set in motion, in 2014 when Republicans first launched this tax reform effort. So we rated this false.
