A new study asking the question: “Why did some state tax revenues increase during the pandemic?” was released April 1, 2021, by the Poole College of Management at NC State University. It explored the outcome COVID-19 restrictions had on tax revenue in each of the 50 states.
The report used a measurement that had North Carolina ranked as having “the seventh most stringent set of restrictions” in the country.
Results from the study showed that 22 states actually increased revenue during the pandemic, surprising researchers who surmised that the pandemic’s negative impact on the country’s economy would mean lower tax revenues for most states.
North Carolina appeared to be a prime example of how the pandemic’s impact on business hurt many enterprises but actually increased tax revenue from some sectors of the economy.
Researchers found that “states with progressive income tax rates and more restrictive COVID-19 policies performed better in terms of state income tax collections relative to states with flat income tax rates and less restrictive COVID-19 policies.”
The report explains that “a progressive income tax structure means that the more you make, the higher percentage of your income you pay in taxes.”
What was different about North Carolina was that in spite of the fact that it has a relatively flat tax rate structure, North Carolina increased tax collections in 2020 by 2.1%.
Nathan Goldman, one of the study’s lead research professors from NC State, said “COVID-19 restrictions put the unintended consequences of tax policies in the spotlight, even in a state like North Carolina. As pandemic restrictions set in, not only were those with lower-income jobs put at a disadvantage, people with higher-income jobs had some opportunities to increase their earnings.”
“For example, some of North Carolina’s major industries – banks, biotechnology, pharmaceuticals – were busy during the pandemic,” Goldman said. “Other studies show that productivity increases among some industries were dependent upon retaining remote employees and bringing in additional remote employees to address their demands. Thus, some higher-waged remote employees could benefit from the COVID-related restrictions by finding a higher-paying job or getting paid more in their current role. As these people’s wages increased at the expense of lower-wage earners, state income tax collections benefitted.”
How sad it is that Governor Cooper’s strict business restriction policies for North Carolina – seventh worst in the nation – hurt so many businesses and put so many North Carolina workers on the sidelines while actually making more money at the same time for others. Just another regrettable statement on government overreach and executive power run amok in a tough year for all of us.