Reform needed, but is this the answer?
North Carolina developed its current system of taxation during the revenue reforms of the Great Depression, seeking to keep state government afloat at a time of widespread hardship. It depended — and still depends — on a relatively high income tax rate and was designed to reflect an economic system driven by agriculture and manufacturing, textiles and furniture.
Such a structure does not reflect an “ideas” economy or one that produces more services than goods, as exists in North Carolina, and therefore the calls for comprehensive tax reform are well placed. However, any proposal that attempts to move the burden for supporting Raleigh squarely on the shoulders of the least fortunate — as the N.C. Senate plan would do — cannot be viewed as a serious answer.
Last week, N.C. Senate President Phil Berger formally announced his proposal for comprehensive tax reform, putting in writing many of the rumors swirling about such a plan. If approved, it would eliminate the personal income tax, corporate tax and business franchise fee in what the Eden Republican claimed would be the largest tax cut in state history.
To offset such a massive loss in revenue collection, the state would dramatically expand the scope of the sales tax to cover many more goods and services. It would include taxing prescription drugs and raising the tax on food from 2 percent to 7 percent here in Pitt County.
Analysis of the plan confirms that the end result would be a tax hike for a majority of state residents and a tax cut for only the wealthiest. In no small measure, the plan would shift the burden of funding state government from those atop the economic ladder to those at the bottom. What’s more, it is not revenue neutral and would therefore require significant spending reductions in a state that already pinching pennies for needs like schools and roads.
The state’s outdated tax structure does need reform and changes are likely to expand the sales tax to cover a greater share of services. However, the guiding principle should be constructing a system of fairness that serve North Carolina’s long term interest. That will not be achieved by raising the tax on food to cut the income rates for the richest citizens, especially if it comes at a cost of harming valuable state services.
That is what leaders in the N.C. Senate propose and why that plan cannot be considered a serious starting point for debate.
This editorial appeared in the May 14 edition of The Daily Reflector, Greenville, N.C. (AP)