NC Democrats pitch 7% tax on $1M+ incomes to fund public schools

North Carolina House Democrats are asking lawmakers to add a new 7% income tax bracket on individual earnings above $1 million and steer the revenue to the state’s public schools.

House Bill 1073, Fair Share for Public Schools Act, would become effective beginning with the 2026 tax year. Under the measure, the NC Department of Revenue would distribute the proceeds, minus up to $100,000 a year in collection costs, to the State Public School Fund for per-pupil allotment to local school districts.

The state’s current flat rate is 3.99% across all incomes. Supporters estimate the new bracket would raise about $1 billion a year.

A 7% rate is the highest rate state lawmakers can impose on personal income. North Carolina voters in 2018 ratified a constitutional amendment capping the state’s income tax at 7%, down from a previous 10% cap.

At a May 11 press conference at the Legislative Building, the bill’s primary sponsor, Democrat NC House Rep. Allen Buansi of Orange County, said the proposal would correct more than a decade of Republican-led tax changes that have left public schools underfunded.

“We need to step up to make sure that we’ve done everything we can to fund our public schools,” he said, pointing to the state Supreme Court’s Leandro ruling that students have a constitutional right to a sound basic education.

NC Rep. Lindsey Prather, D-Buncombe, a former Buncombe County Schools teacher, said the new bracket would impact a small number of taxpayers.

“It’s only going to impact 0.59% of North Carolinians in this state, and a lot of them are willing to step up and to help,” she said. 

Prather warned that local governments are increasingly being pushed into the role of “the bad guys,” raising revenue when the state declines to fund public education at the level she said is needed.

Raleigh resident Monica Lavery, who is part of the national advocacy group Patriotic Millionaires, joined lawmakers at the press conference. Lavery argued that the 2013 Republican tax overhaul, which traded lower income-tax rates for an expanded sales tax base, effectively shifted the burden onto lower-income earners.

“Do you think I’m going to stop investing because I have to pay an extra $20,000 or $30,000, or whatever it is, in taxes? No,” Lavery said.

Critics say the proposal misreads both who currently pays the state’s income tax and how mobile that revenue base is.

Joseph Harris, a fiscal policy analyst with the John Locke Foundation, which publishes Carolina Journal, said taxpayers earning more than $1 million already shoulder an outsized share of state income tax. Citing the most recent State Controller data, Harris said millionaire filers make up about 1% of taxpayers but pay 10.6% of all individual income taxes collected in North Carolina. 

Over the same period, he said, the state has emerged as one of the country’s top destinations for wealth migration, gaining roughly $4 billion in net interstate income flows in 2023.

“Imposing a new 7% tax rate on those taxpayers would risk slowing the wealth migration that has helped strengthen North Carolina’s revenues in recent years,” Harris said.

Brian Balfour, senior vice president of research at the John Locke Foundation, pointed to other states that have tried similar policies. “I guess some people refuse to learn from the mistakes of others,” he said. “We’ve seen what these ‘tax the rich’ schemes have done in other states such as New York and California.”

Balfour noted that New York Gov. Kathy Hochul has publicly courted high-net-worth residents who moved to Florida to return to the state, and that California’s proposed “billionaire’s tax” has already prompted several wealthy residents to relocate. Roughly 51,000 North Carolinians would be subject to the new rate, Balfour said, citing 2023 State Controller data, the latest available.

“High income earners are not stationary targets, and many will move residencies or find a way to shield their income from this higher rate,” Balfour said. “The result will be less revenue raised than anticipated, and a loss of valuable contributors to our economy.”

He added that millionaires who want to contribute more to the state can already do so voluntarily to the Department of Revenue.

“North Carolina has made tremendous strides in the last 15 years in tax reform, becoming the best state in the country to do business,” Balfour said. “Imposing this ‘millionaire’s tax’ would be a big step back.”

“NC Democrats pitch 7% tax on $1M+ incomes to fund public schools” was originally published on www.carolinajournal.com.