As the climate warms, the carbon balance of arctic ecosystems will respond in two opposing ways: Plants will grow faster, leading to a carbon sink, while thawing permafrost will lead to decomposition and loss of soil carbon. However, thawing permafrost also releases nitrogen that fertilizes plant growth, offsetting some carbon losses. The balance of these processes determines whether these ecosystems will act as a stabilizing or destabilizing feedback to climate change. We show that this balance is determined by the rate at which permafrost carbon decomposes as it thaws, and that the stabilizing effects of nitrogen from permafrost is weaker than the destabilizing carbon losses from those soil layers.