Greater Durham Chamber of Commerce
From Ramsay Ritchie, Chamber VP of Public Policy, in Policy Pulse, the Greater Durham Chamber of Commerce's policy newsletter:
Maximum Income Tax Rate of 3.5% - This constitutional amendment will set a cap on NC income tax of 3.5%. For context, income tax is already scheduled to drop to 3.49% in 2027. This amendment will freeze it there or below forever (barring a future amendment). North Carolina already has a constitutionally mandated income tax cap of 7%, so this provision essentially cuts in half the potential rate at which the state can collect revenue through income taxes. To be clear, North Carolina income tax is scheduled to decrease steadily to 2.49% by 2034 already (a $9.7B revenue loss for the state). This amendment simply makes it legally impossible to raise income tax beyond that 3.5% number if additional revenue is necessary.
How will this impact Durham? The truth is that there's no immediate way to know. This past year offered a great view into how challenging it can be for our city and county to operate without adequate state funding. An obvious risk to capping income tax in a state with nationally low education spending and no shortage of infrastructure needs is that such a cap hampers our future ability to raise revenue. Individual income tax accounts for half of the NC State general fund. Without the ability to increase income tax future revenue increases will likely come from sales and use tax increases making the costs of goods and services higher for everyone.
Property Tax Levy Limit - This amendment is somewhat more nebulous in its immediate impacts because the provision itself is quite vague. The property tax levy limit would amend the constitution to "require the state legislature to pass laws limiting the amount that property taxes may increase." It does not specify the limit. This is also confusing because the state legislature already has the authority to set limits on local property tax increases because North Carolina is a Dillon's Rule state. The change here is that the new amendment would require that the legislature introduce a "levy limit" or a cap on the total revenue a government can collect regardless of property valuations. Put more simply, the legislature is tasked with capping how much revenue a municipality can collect.
How will this impact Durham? In short, Durham will have less control over revenue collection. According to this year's budget document property and sales tax account for 78% of Durham County's annual revenue. 60% comes from property tax alone. This amendment will likely limit the county's ability to increase property taxes resulting in one of two outcomes: a smaller budget (fewer services, lower education funding, less staff investment, etc.) or higher sales taxes.
Both of these amendments could have dramatic impacts on how Durham's government and its services are funded for the foreseeable future.