North Carolina is dominated by republicans at the state level. Such domination can be dangerous. However, it can also make for change that has been decades in coming.
Tax reform is just that change.
Right now North Carolina has a very high corporate tax rate compared to other southern states. Additionally, the state income tax is also higher than our neighbors. The thinking is that we would be able to attract more businesses to North Carolina if only our tax structure was more competitive. I agree. However, while businesses do look at the corporate tax, I’m not sure how much they look at individual income taxes.
It is with this mix of taxes that the republicans in Raleigh are looking at tax reform:
RALEIGH — A far-reaching plan proposed by Republicans in the state Senate would slow government spending and affect the wallet of every North Carolinian as it slashes income tax rates and raises the cost of food, prescription drugs and more than 100 tax-exempt services.
Senate leader Phil Berger outlined the forthcoming legislation Tuesday, calling it a $1 billion tax cut that is the largest in state history.
“This is a huge change in the way North Carolina taxes its citizens, the way North Carolina generates its revenue to fund services that government provides,” said Berger, an Eden Republican and the Senate president pro tem.
It shifts the tax burden to consumption rather than income, a move that will disproportionately affect low-income taxpayers and families. A married couple with two children making $30,000 a year would pay an estimated $1,000 more in taxes each year, according to a calculator on a political website designed to support the plan. By contrast, a single taxpayer making $200,000 would get a $6,000 break.
Under the proposal: The state’s 7.75 percent personal income tax rate for the top bracket would gradually drop to 4.5 percent over three years, and likewise the 6.9 percent corporate income tax would fall to 6 percent. The estate tax, paid by only the wealthiest taxpayers in 2010, would be eliminated, and the business franchise tax would see a 10 percent reduction.
To offset the cuts, the state would apply a lower sales tax at 6.5 percent to roughly 130 services that are currently exempted, or essentially any service taxed by at least one state.
In short, the idea is to reduce the corporate tax -GREAT idea- reduce the income tax -perhaps a good idea- and lower the sales tax BUT widen the base of that lower sales tax.
In discussing the new structure, I think that the republicans are going to have to be honest and admit that it is what it is, a shift of taxes and a effective increase on the folks who make less money than the wealthy. It still might not be a bad idea, but it has to be recognized for what it is.
Personally, I would like to see a plan that is closer to revenue neutral for those who would be most negatively impacted. And this is where it can get tricky. For example, for those of us who are most poor, we would indeed be faced with a sales tax on food. However, we have to acknowledge that the money for that food is likely to have been supplemented by government to begin with.
Is taxing food stamps really taxing those that use them? Perhaps in a way, but not in the way that we generally use the term tax. What it would do is reduce the amount of food that would otherwise fit in the basket, but it would not be taxing the income of that individual purchasing the food.
The next idea would be that while the tax burden is certainly shifting, and no one should deny that, is it shifting into a more equitable position? After all, this is more of a “Flat Tax” solution than the traditional income tax only solution. In fact, other states are even more reliant on sales tax than income tax; think Washington state and Florida.
Regardless of what actually is passed into law, this is certainly an interesting conversation.