Charlotte Observer, Newsobserver----
A missed chance to offer N.C. a fairer tax system
RALEIGH --- Have North Carolina Democrats missed a golden opportunity to change the state's outdated revenue system and produce a fairer, simpler tax code the meets the state's needs or basic services?
They sure have. This year, with the economy in tatters and a public highly resistant to tax increases in a prolonged recession, lawmakers in the House and Senate raised sales and income taxes by nearly $1 billion and boosted a host of government fees to boot.
If legislators were going to embrace tax increases so willingly, they might as well have adopted a new system of taxation at the same time that, at least, would have cut tax rates in future years and given the public, and themselves, something to feel good about.
Sure, the public would have been upset about a broader sales tax base that applied to more items. But the public might have gotten over the pain quicker if they also could see that tax rates will be coming down instead of going up.
What's wrong with lower rates?
That would have given Democrats, who run the legislature a win, win, win situation: Rates would come down on sales taxes, on income taxes and on corporate taxes. What's not to like?
True, they might not all come down the first year. But some of them would. And if legislative leaders can come up with a package that reduces rates for all three tax areas, within a specific period, they'd find wider support than they've generated for a 22 percent hike in sales taxes and a 2 to 3 percent surcharge on personal income taxes this year.
Six months ago, this looked like it might be the year that North Carolina finally rewrites a tax code designed for an economy that no longer exists. Senate Finance Committee Co-chairs Dan Clodfelter, David Hoyle and Clark Jenkins were working on a plan to extend sales taxes to a lot more services and to cut tax rates.
But after the Senate passed a budget with a $500 million hole in it, the trio did not follow through with a formal plan of tax reform for the full Senate to adopt and for the House to consider.
Meanwhile, the House felt the Senate had left it in a bad position by passing an incomplete budget. There was little initial support for any tax hikes, regardless of whether it involved tax reform or just tax repeats.
Many House members, including House Speaker Joe Hackney, wanted to know how tax reform would work. Who would pay more? Who would pay less? How would it affect people? And dozens of other appropriate questions.
And Gov. Bev Perdue, stuck with the most challenging balancing act of any governor in the modern era, was trying to keep the wheels of government turning. There was no time for the heavy lifting of figuring out a new tax plan while trying to keep classrooms open and prison doors shut.
So we wound up, once again, with no progress on tax reform. Or did we? The new budget directs a study of the revenue system with an eye toward reconsidering it next year. Senate President Pro Tem Marc Basnight said there could be a special session next year to consider restructuring the way we pay for government.
It's possible, but not probable. For real tax reform to occur within the next year, a number of things must happen:
Perdue must become involved, and enthusiastically so. She's getting the blame now for coming up with the sales tax hike; it's in her interest to come up with a dramatic way to cut taxes. If she embraces the idea and campaigns for it, she could boost its chances and her own chances of leaving an indelible imprint on state government.
It's time for a specific plan
Hackney must signal to his membership that tax reform is both doable and advisable. He has promised a “good faith” examination of tax reform, but he clearly is not yet convinced of the need. Tax reform has, he notes, “a checkered history” in other states, and its success here depends upon how it is designed. Without a plan from the Senate, he noted, the House had little more than an outline.
Senate leaders must put a comprehensive plan on the table. It must include a guideline that shows its impact on different categories of individual and corporate taxpayers. And it must credibly make the case that key tax rates will drop, and when. Making this case will call for more publicly persuasive arguments than the Senate is accustomed to producing.
The business community must provide some leadership and help give lawmakers arguments for tax reform as well as political cover. Former Gov. Jim Hunt and the Institute for Emerging Issues have carried the ball on this subject for years, and galvanizing additional support among public advocates, philanthropic interests and other institutional players could be most crucial to real Tax Reform.
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Sources: Charlotte Observer, Newsobserver, Google Maps
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