RALEIGH, N.C. (WNCN) — Could you wind up paying more in federal income taxes under a proposal from a leading U.S. Senator?
North Carolina Democrats say that for nearly 40 percent of people in the state, the answer is yes.
THE CLAIM: A statement from the state’s Democratic Party says 39.8 percent of North Carolinians would see a tax increase under a plan proposed by Sen. Rick Scott, R-Florida.
THE FACTS: The bottom line, according to Nathan Goldman, a taxation expert and assistant professor of accounting at North Carolina State University’s Poole College of Leadership: The nonprofit’s math checks out.
“I believe that it is a valid claim,” Goldman said.
The party points to an analysis from the Institute on Taxation and Economic Policy, which is described as a nonprofit, nonpartisan Washington think tank.
It released a breakdown earlier this week of its projected effects of a tax proposal discussed by Scott, the chairman of the National Republican Senatorial Committee.
The platform put forth by his personal campaign committee includes a suggestion that would require all Americans to pay federal personal income taxes.
“All Americans should pay some income tax to have skin in the game, even if a small amount,” the platform said.
The analysis says the proposal would increase taxes by more than $1,000 on average for the poorest 40 percent of Americans.
When it comes to the percentage of households seeing tax increases, North Carolina would rank in the top quarter of states, with Mississippi (50.1 percent) the highest and the state of Washington the lowest (24.2 percent).
Here’s why: The ITEP breakdown assumes Scott’s proposal would require a tax liability — or, the amount of tax owed on your level of income — of at least $1. That would only increase that liability from $0 to $1 for some people.
But others who receive refundable tax credits — like the Earned Income Tax Credit or the Child Tax Credit — can have a negative federal income tax liability.
“The only possible interpretation of Sen. Scott’s proposal is that everyone who has negative federal income tax liability under current law would instead have federal income tax liability of at least $1,” according to the ITEP analysis. “The EITC and Child Tax Credit would no longer provide households with negative income tax liability, meaning no one would receive money from the IRS after they file their tax return.”
He said about 44 percent of all taxpayers had no income tax liability in 2019, but the various tax credits enacted during the pandemic pushed that rate to 61 percent in 2020 and 57 percent last year.
“So it’s actually pretty common for a taxpayer to not have an income tax liability,” he said.
Right now, it’s just a suggestion. But does it actually have a chance of happening? Or is merely food for political fear-mongering?
GOP leaders have distanced themselves from it, with Senate Minority Leader Mitch McConnell, R-Kentucky, saying last week that the plan “will not be part of the Republican Senate majority agenda.”
Goldman doesn’t see it becoming a reality, either.
“If you look at them, some of them are more radical than others, I would say this one’s probably a bit on the radical side,” he said.
Not only because it would be widely unpopular, but because it wouldn’t bring in all that much more tax revenue.
The Earned Income Tax Credit only cost the U.S. government about $70 billion a year — a massive amount of money to regular people, but “actually relatively small compared to all of our tax revenues that we collect.
“And this money is going precisely to those lowest-earning individuals,” he said.