Legislators Examine Local, State Tax Burden

A legislative briefing on shifts in taxes over the last decadespilled over into a debate about whether they are spread equitablyand their effects on the business climate within the state.

Theissues will be important factors as legislators begin drawing up astate budget facing a third consecutive year of stagnant taxcollections and a soft economy.

In 2002, North Carolina ranked 29th in the country in state andlocal tax burden as a percentage of personal income, according toU.S. Census Bureau data.

Republican lawmakers, though, say the ranking doesn't change thefact that high corporate income and personal income tax rates hurtthe state when it comes to job recruitment.

"If a company is going to consider coming to North Carolina,why would they consider coming here when they learn the corporateincome tax rate is the highest in the Southeast?" said Sen. RobertPittenger, R-Mecklenburg. "So we really are creating an impedimentto job creation and economic development."

North Carolina's corporate income tax rate is 6.9 percent.Neighboring states Tennessee, Virginia and Georgia have a 6 percentcorporate rate, while South Carolina taxes corporations at 5percent.

The marginal income tax rate North Carolina places on wealthyearners requires that they pay 8.5 percent on a portion of theirearnings. That rate is also higher than any other southeasternstate.

But North Carolina also picks up the cost of services that manystates leave to local governments. That translates into relativelylow property tax rates and an absence of many of the local optiontaxes effective in states such as Virginia.

North Carolina also is one a handful of states that does not taxgovernment pensions and one of 35 that doesn't tax Social Securitybenefits.

"The important question for the General Assembly is whethertaxes are fairly distributed among the population," said Rep. PaulLuebke, D-Durham. "Corporations and the wealthy shouldn't beexcluded from taxes just because they make more noise about payingtaxes."

But Sen. Bob Rucho, R-Mecklenburg, said the state won't be ableto increase average personal income if its tax policies drivebusiness away.

"The last thing we need to do is to put more of a burden onbusinesses," Rucho said.

Legislators were also provided with information showing that, asa percentage of revenues collect, county governments are relying onproperty taxes for a smaller percentage of their budgets than theywere a decade ago.

Those numbers may be skewed, local government officials said,because of a rise in the federal pass-through dollars to pay forprograms like Medicaid.