Local Politics

Lawmakers: State tax reform unlikely in 2010

Posted December 28, 2009 5:26 p.m. EST
Updated December 28, 2009 6:52 p.m. EST

— Much of the debate over how to erase a record budget deficit last summer centered on reforming the way the state charges sales tax. But lawmakers said such changes are unlikely in 2010 as lawmakers face re-election.

In recent decades, North Carolina's economy has shifted from its manufacturing roots to one that is more service-oriented. That has prompted some lawmakers to float the idea of rewriting the state tax code to reflect that.

They argue that broadening the sales tax to include entertainment like golf or a service like professional lawn care or auto repair could lower the overall tax rate on goods.

"We want to know such things as what would be the impact on the average middle-class family," said Rep. Paul Luebke, D-Durham, who chairs the House Finance Committee.

Revising the tax system came closer than ever to passing last summer, with the $4.6 billion deficit forcing lawmakers to scramble for ways to generate revenue as well as cut spending.

Luebke said the historic change still needs more consideration and likely won't happen during an election year like 2010.

"If people go in the direction of political gamesmanship, it makes it much harder for the project to be implemented," he said.

The Federation of Tax Administrators last year surveyed the 45 states that charge sales tax and found that Hawaii taxes 160 of 168 services included in the survey, followed by New Mexico and Washington state at 158 taxed services each. North Carolina taxes 30 of the services.

Chris Fitzsimon, executive director of NC Policy Watch, a progressive think tank, said any tax proposal during an election year poses a political danger. Still, he said, budget shortfalls like the one seen this year and one projected for next year point to the need for a broader revenue stream.

"We've waited and waited, and now we're being told we need to wait again. I think the argument is exactly the opposite. Now is the time to do it," Fitzsimon said.

House Speaker Joe Hackney said lawmakers continue to work through the details of tax reform.

"Tax reform requires careful consideration and thought, which is exactly what we are giving it," Hackney said in a statement. "Ideally, both parties will come out in favor of any proposed overhaul, though at this time, it appears we lack the bipartisan support we would like to have to go forward."

Republicans said they fear reform proposals will only add to the tax burden North Carolina residents face.

"My primary worry is that there's no check on the growth of government spending, and there's no provision to save money," said Rep. Nelson Dollar, R-Wake. "In a recession, to say we're going to begin to tax all of those (things) you don't already pay taxes on, I don't see that happening in 2010."

Fitzsimon said the easiest thing for Republicans to do to block any reform effort "is to play politics and say no matter what they try to do it's bad policy."