State News

Think-tank urges lower, broader taxes in N.C.

Posted April 14, 2009

— A think tank wants lawmakers to revamp North Carolina's tax system by cutting tax rates while making more people pay taxes on more things.

A committee created by the Institute for Emerging Issues at North Carolina State University said Tuesday the General Assembly should pass tax reform this year. The group said North Carolina would take the lead as a business-friendly state if it goes forward.

The committee says sales taxes and corporate and personal income taxes should be reduced while exemptions and loopholes eliminated. The committee co-chaired by former Charlotte Mayor Richard Vinroot also says local governments should have options to raise their own funds.

Senate Democrats already are considering whether to roll out a tax package soon that would lower rates while taxing some services.

The committee's recommendations:

Statement of Principles: Tax Modernization in North Carolina

On April 14, IEI's Business Committee on Financing the Future released the below statement of principles for modernizing North Carolina's system of tax and finance.

North Carolina’s existing tax system needs to be overhauled. Our state’s economy and population have changed dramatically over the past century, yet our financial systems have not kept pace. As a result, while the overall tax burden is relatively low, revenues are extremely volatile due to an overdependence on the income tax and a severely eroded sales tax base. The sales tax rate is higher than it could be because the tax applies to an increasingly limited range of goods. Personal and corporate income tax rates are above those in surrounding states.

The current financial crisis makes all these problems even worse. If we act now, a comprehensive overhaul will place our state in a much better situation for the future. Other states with similar problems have made, or have proposed, reforms to meet the demands of the future. North Carolina cannot be left behind. We must create a tax system that is competitive, stable, adequate and fair if we are to prosper in the 21st Century economy.

The Business Committee on Financing the Future (BCFTF) believes that a modernized system should be characterized by three basic principles: simplicity, fairness, and a minimal number of exemptions. The goal should be comprehensive change that is revenue neutral, fundamentally pro-growth, and yet offers a variety of improvements when all elements are considered together.

Sales Tax

To decrease the volatility of revenues and to allow a substantial reduction of the tax rate, the BCFTF believes that the sales tax should extend to many services and previously exempted tangible items but not medical services and prescription drugs. The committee supports a compensation mechanism for low-income taxpayers if the sales tax is broadened to include food.

The committee believes that an important purpose of extending the sales tax to include previously exempt goods and services is a reduction in income tax rates.

Income Tax

The BCFTF supports using Federal Adjusted Gross Income as the base for calculating personal state income taxes, with minimal deductions and exemptions. At the same time, the committee also supports reducing marginal individual income tax rates to a level that is competitive with other southeastern states, while maintaining a progressive rate structure.

The committee recognizes that there may be alternative ways to tax corporations in the place of an income tax, noting that there are other states attempting this. The Committee suggests further study of “best practices” by the appropriate public bodies.

Local Revenues and Responsibilities

The BCFTF believes that all local responsibilities, new and old, should be consistent and should have adequate and appropriate sources of funding. Funding should be provided through a suitable balance of local revenue options and state assistance designed to compensate for variations in the local tax base.

The Committee believes that local government will inevitably benefit from comprehensive tax reform.

Conclusion

The overall purpose of the changes outlined above is to prepare North Carolina for success in a 21st century economy by providing it with a system of tax and finance that is stable, fair and adequate to needs of future generations.

15 Comments

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  • Nancy Apr 14, 2009

    FLAT TAX - stop the rigging of the tax code. make it the same for all, for each dollar spent and earned.

    This is just a tax shuffle, it's nothing more.

  • JustOneGodLessThanU Apr 14, 2009

    tbajr, should ALL food, clothing & medical really be tax free? What about non-essential “food” like meat? Humans don’t need it and, in fact, it harms us & increase medical costs. How about $500 shoes & $2000 suits? How about cosmetic surgery? All tax free? Care to restate?

  • JustOneGodLessThanU Apr 14, 2009

    A loaf of bread costs the same for poor as it does the rich, so it just harder to survive when you’re poor.

    And, it’s misleading to say the rich pay “more” tax. Based on percentage of income, the rich often pay less than the poor. For instance, even we seemingly non-rich bloggers may enjoy tax loopholes that the poor cannot. (e.g. home mortgage deduction, capital gains exemptions, etc.)

  • inform Apr 14, 2009

    Killerstrel, me again could have more more appropriately stated the poor pay "relatively little" in taxes. There's no justification, however, for your statement. Are you poor and don't want to pay any more in taxes? Or, do you have too much disposable income and can afford to pay more? Or do you want to penalize the rich. I doubt it's the second or the first, and most likely the third. What's your problem? Let's see if WRAL let's this through, it's kinda inflamatory, but then, so is your post, and I wholeheartedly agree with me again.

  • dplowman Apr 14, 2009

    Why not a ten percent sales tax on everything and do away with the income tax? Pretty soon their won't be anyone left to pay the taxes if we keep going like we are.Why cant the state and local goverment try to cut some of their spending and save some money like everyone else is doing? Why don't we give a drug test to any-one getting goverment aid?

  • tbajr Apr 14, 2009

    Food, drink, clothing, medical should not be taxed! We should
    downsize government, tell the feds to stay in DC, and stick to
    Constitutional taxing. No one should have to pay for anothers
    education - get over it!

  • panthers254 Apr 14, 2009

    well..... if people who are not working and collecting government subsidies pay more tax, wont that money eventually get back to them anyway. paying the government with government money is sort of redundant. i am all for helping people out that work for a living, whether they be middle class, working class, heck, it doesnt matter, if you are contributing to society by working, the government should be helping you instead of trying to break your back with more taxes.

  • killerkestrel Apr 14, 2009

    Me again - Who is poor is a discussion that can go on forever. The bottom 20% of households make less than $18,500. The top 20% make over $157,000. Would you say the middle class (60% of households) is $18,500 to $157,000? Or should one divide it at $35,000 and say 40% of households are poor, 40% middle, and the 20% making over $157,000 are rich?

    Plenty of households making less than $35,000 (or $18,500) pay some kind of taxes. Sales taxes, payroll taxes, gas tax, phone tax, etc. So I wouldn't say the poor pay no taxes. Guess your statistics skills need some work if they hope to catch up with my math scores, which were pretty good back in the day when I was in school.

    But now that they have expanded the story, I would agree on some points. Why not charge the same sales tax on services and products instead of having so many different rates that drive one crazy.

  • G-man Apr 14, 2009

    Democrats don't pay taxes. Obama's cabinet and other staff are prime examples.

  • colliedave Apr 14, 2009

    How about going through the voting rolls and seizing 90% of the income of those registered as democrats?

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