If you had any doubt that there is a desperate need to overhaul North Carolina’s tax code, consider the following fact that was reported yesterday at a Together NC event here in Raleigh by the N.C. Budget and Tax Center’s estimable Edwin McLenaghan:
From 2008 to 2009, the total personal income (TPI) of the state of North Carolina fell by 0.8%. Now, admittedly, this was a big deal. It was the first time TPI had contracted in decades. But still, the fall was less than 1%.
The impact that this drop had on state revenues, however, was HUGE. For the same one-year period, state tax revenues fell 11.7%. In other words, at the very moment that public services and structures were most needed, the state was terribly hamstrung in its ability to fund them.
This is more proof that North Carolina’s tax system has become obsolete. Because it was designed in the 1930’s and fails to capture revenue from broad swaths of the economy, it’s become way too volatile.
We need a new and improved tax system (particularly in the sales tax realm) that broadens the base and lowers rates. This would smooth out the roller coaster and leave the state less reliant on federal bailouts and politically painful rate hikes to keep up with the needs of a growing state and ahead of future downturns.