During the 2018 election, voters made their voices heard when they approved an amendment on the ballot that decreased the cap on income taxes from 10 percent to 7 percent. This measure didn’t alter tax rates, but rather put in place a maximum rate that personal or corporate income taxes cannot rise above.
Recently, policymakers in the North Carolina Senate advanced a bill that would further decrease the maximum income tax rate that can be legally levied from 7 percent to 5 percent. Senate Bill 630 proposes multiple policy changes, however, this article focuses on the Constitutional amendment to income taxes.
One with common sense might assume that the prospect of a further reduction in income taxes would be welcomed by all state taxpayers. Unfortunately, however, not only has the amendment received accusations of favoring the wealthy at the expense of low-income North Carolinians, but some opponents also believe that tax paying citizens should not be allowed to vote for its approval. Apparently, some policy experts think that ordinary North Carolinians do not know what is in their own best interest.
Contrary to beliefs espoused by subscribers of Socialism, the primary purpose of government is to protect our individual liberty so that society can flourish organically. The basis of government is not to be a mechanism used to impose social justice by those who harbor deep-seated resentment toward their fellow citizens.
Society is not only independent of government, but these two entities are also distinct in origin. As eloquently stated by Thomas Paine in his 1776 pamphlet, Common Sense, “Society is produced by our wants, and government by our wickedness… Society in every state is a blessing, but Government, even in its best state, is but a necessary evil.”
Disturbingly, there is a growing effort in politics that aims to use government’s state power to punish those in society with what Murray Rothbard called “social power.” As asserted by Rothbard in his 1974 work, The Anatomy of the State, “Social power is man’s power over nature, his cooperative transformation of nature’s resources and insight into nature’s laws, for the benefit of all participating individuals… State power, is the coercive and parasitic seizure of this production—a draining of the fruits of society for the benefit of nonproductive rulers. While social power is over nature, state power is power over man.”
Those who champion higher taxes, do not do so because they want to grow the economy, this can only be done by increasing the volume and size of voluntary transactions made between private firms and individuals. Instead, their aim is to utilize state power to punish those with social power, who are growing the economy, based on their own preconceived prejudices against those who produce.
Article 1, Section 1 of the North Carolina Constitution guarantees citizens the right to “the enjoyment of the fruits of their own labor.” The state’s Constitution, however, does not grant citizens the right to enjoy the fruits produced by the labor of other citizens. As a result, the further reduction in the income tax cap within Senate Bill 630 is not only common sense, but it is coherent with our state’s Constitution. It should never be forgotten that the purpose of any constitution is to restrict the power of government, not to embolden its coercive power.
It is worth noting that the decrease to 5 percent would not have an immediate impact on the current personal income tax or corporate income tax rates, which are 4.5 percent and 2.5 percent, respectively. This means that the proposed amendment would not decrease current income tax rates, but it would stand as a safeguard against future increases that could come at the direct discretion of politicians.
Based on current law, if certain benchmarks are met then the personal income tax rate is scheduled to be reduced to 2.49 percent in 2029 and the corporate income tax will be eliminated in 2030. Supporters of these tax cuts have pointed out that by 2031, these reductions will save North Carolina taxpayers $13 billion annually. This is $13 billion that everyday citizens can utilize to provide for their families in the manner that they best see fit.
Opponents of the tax cuts view this $13 billion as belonging to the state. They believe that allowing the citizens of North Carolina to keep more of the money that they’ve earned through their own productive labor is a $13 billion cost to the state, not a $13 billion benefit to the people.
In response to those who assert that North Carolina’s current public spending is inadequate due to the wealthy not paying their fair share in taxes, we should look at the facts. In 2021, North Carolina households earning more than $200,000 per year only represented 8.4 percent of all taxpayers, however, their incomes contributed to 50.6 percent of all income tax revenue collected by the state. Perhaps, this is not enough; maybe the touters of higher income taxes for the wealthy think that their fair share would be 80, 90, or even 100 percent.
As noted above, the amendment would not decrease current income tax rates; however, it would provide protection against future attempts by the government to expand its economic authority over the state. As Fredrich Hayek stated, “Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends.”
So, the next time you hear the clamor of advocates calling for tax increases for the wealthy, know that their motivation is not compassion for common citizens. On the contrary, their motive is a desire for control. The proposed reduction in the maximum income tax from 7 percent to 5 percent is supported by common sense economics, aligns with the state’s Constitution, and benefits all taxpayers, regardless of identity or income.
