There’s no telling how the tax cookies will crumble by the time the 2013 General Assembly closes shop. But chief bakers in both the House and Senate seem intent on some manner of “reform.” In sync with Gov. Pat McCrory, they’ve signaled their desire to cut income tax rates, and hopefully to replace lost revenue by revamping the sales tax to cover more kinds of transactions.
The concerns here are twofold: 1) whether a realigned tax structure will yield enough revenue to fund state government programs that must not be allowed to wither, and 2) whether shifts in the tax burden will hurt people who are least able to afford paying more.
A more stable tax system has long been a goal of forward-thinking North Carolina leaders. It would help protect important state services, including the social safety net, during hard times. But there likely would be winners and losers among taxpayers, at least if revenues are to be held reasonably steady so programs don’t have to be gutted. That has made reform politically difficult.
Sen. Dan Clodfelter of Charlotte is pushing a tax reform bill that stops short of changes as dramatic as those favored by some conservative leaders. In fact, Clodfelter’s Senate Bill 394 has bipartisan sponsorship. Notably, it would set a flat personal income tax rate of 6 percent, lowering the top bracket from 7.75 percent, while extending the sales tax to cover a range of services.
The N.C. Budget & Tax Center – whose parent group, the N.C. Justice Center, looks out for the interests of ordinary people and the disadvantaged — has scoped out the likely effects of S.B. 394. The wealthiest North Carolinians should love it. As for everyone else, there’s not much to like.
“First Comprehensive Tax Proposal Out of the Gate Stumbles: Low- and Middle-Income Families Not Protected from Tax Shift.” That’s the title on BTC Project Director Alexandra Forter Sirota’s write-up.
Among key findings: Some 80 percent of taxpayers would pay slightly more. But those with income above $393,000 – the top 1 percent – would see overall sales and income taxes drop by an annual average of more than $5,000. That’s a stark departure from the fairness principle of progressive taxation.
The BTC also worries that tax changes like the ones proposed in S.B. 394 would make it harder for the state to raise revenue for schools, health care and other essential programs.
As Sirota explained at the N.C. Council of Churches’ Legislative Seminar on April 11, the rationale for cutting or even abolishing the state income tax has to do with giving more favorable tax treatment to “job creators.” But she made a case that tax-cutting is not the path to economic growth. Further, it’s the income tax that can be counted upon to yield the most revenue when the economy is recovering from a slump, as it is now. The BTC’s view — one that makes sense — is that the state should use that additional money to restore cuts in key programs and build a rainy day fund to shore up against the next downturn.
North Carolina’s tax system may not be perfect. But those of us who want to make sure the state collects enough money to meet the basic needs of its residents have to be on guard against changes that would just make matters worse.
–Steve Ford, Volunteer Program Associate
