You had to wade through a relatively long Daily Journal Tuesday to reach a key piece of information about the relative N.C. income tax burdens of high-income and low-income taxpayers.
To recap: Under current law, a single tax filer earning $1 million owes 132 times as much income tax ($54,508) as a childless married couple with an income of $25,000 ($412). (Caveat: I’m not incorporating any credits, exemptions, or deductions other than the flat tax rate and the standard deduction. This is because the Daily Journal was designed to focus on these two changes to the tax code.)
The new state budget lowers the flat tax rate from 5.499 percent to 5.25 percent while raising the standard deduction from $8,750 to $10,000 for single filers ($17,500 to $20,000 for married couples filing jointly).
With the two changes, the tax bill drops from $54,508 to $51,975 for the $1 million taxpayer (a tax break of $2,533). The bill drops from $412 to $262 for the $25,000 household (a tax break of $150). The $1 million taxpayer’s break is 17 times as large as the $25,000 household’s break.
But here’s the kicker: The ratio of the two tax bills is now larger thanks to changes in the state budget. The $1 million single taxpayer now faces a bill 198 times as large as the $25,000 married couple. This is due to the increase in the standard deduction. This change has a relatively larger impact on lower-income households.
For another example of this effect, let’s go back to the original numbers at the top of the Daily Journal. N.C. House Minority Leader Darren Jackson, D-Wake, suggested — erroneously — that a $1 million single taxpayer would get a tax break of $8,226, while a $25.000 household would get a $39 tax break.
To get a tax break of $8,226, a single taxpayer actually would have to earn $3,286,009. A married household would have to earn $18,210 to see a tax break of $39. The single taxpayer earns 180 times as much income as the married household. Under current law, his tax bill ($180,216) is 211 times as large as the household’s bill ($39).
With the change in the law, the $3.28 million taxpayer faces a state income tax bill of $171,990 while the $18,210 household faces zero tax liability. There’s no way to divide 171,990 by 0, but it’s clear that the ratio between the two bills has grown. In fact, a married household would have to earn more than $20,019 to start paying the first dollar of state income tax. At that point (nearly $2,000 of income higher than the $18,210 household), the ratio of the single taxpayer’s tax bill to the married couple’s tax bill would be 171,990-to-1.
