GOP wins escalate NC tax reform debate

Posted November 9, 2012 6:06 p.m. EST
Updated November 10, 2012 7:36 a.m. EST

— Gov.-elect Pat McCrory and Republican legislative leaders campaigned on reforming North Carolina's tax system, and their election victories Tuesday mean proposals will be on the table when lawmakers return in January.

"What we want is a fairer system to collect the same or less in taxes," House Majority Leader Paul Stam said.

Republican leaders have focused on plans to reduce North Carolina's corporate and personal income tax rates to rival those in nearby states.

Last year, 44 percent of the more than $22 billion in tax revenue in North Carolina came from individual income taxes. Nationally, states average 34 percent of their total revenue from income taxes.

Corporate taxes generate only about 4 percent of the state's annual revenue, but critics complain the rate is the highest in the Southeast.

To offset those lower rates, however, tax loopholes could be eliminated and sales taxes added to services ranging from automotive repairs to landscaping to haircuts.

"Yes, you're tax went up over here, but it went down over there," said Stam, R-Wake.

Sales taxes account for about 27 percent of North Carolina's revenue, and excise taxes on gasoline, alcohol and cigarettes generate another 17 percent.

Raising and lowering taxes doesn't compute for Sharon Creech, the owner of N Style Hair Design in Raleigh.

"I don't think we need to create new taxes. I think we need to learn how to spend the money that we already have," Creech said.

GOP leaders haven't yet announced which loopholes and service taxes will be on the table.

"I'm confident we'll do some tax reform. I'm just not sure how extensive it will be," Stam said.

Chris Fitzsimon, executive director of the left-leaning NC Policy Watch group, said previous efforts to reform the state's tax structure have always failed.

"Some of the best minds in North Carolina have been working on this for 20 years and have yet to overcome some of the political and entrenched special interest opposition and that's still going to be there," Fitzsimon said.

Mike Walden, an economist with North Carolina State University, said the state's 80-year-old tax system is in need of an overhaul.

"Once you get into where the changes will be is where you get the disagreement," Walden said. "This is extremely heavy political lifting."