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Sirota: Modernize the revenue system to save jobs

Don’t miss today’s Charlotte Observer op-ed by BTC Director Alexandra Forter Sirota.

Updating our revenue system is something North Carolina needs to do anyway. The lasting impacts of the recession only make the issue a higher priority. To save jobs, this is something our state simply must do. Sirota writes:

More cuts – on top of the cuts from 2010, on top of still more cuts from 2009 – will further reduce the state’s capacity to serve communities and families, result in public- and private-sector job loss, and fail to set the state on a sustainable path to supporting long-term economic growth.

North Carolina’s policymakers must recognize that there is a choice to be made in the upcoming budget process. Choosing to make $3.7 billion in cuts will kick the problem further down the road. Choosing to reform the state’s revenue system would position North Carolina to weather future financial crises and ensure adequate support for public structures. Leading economists have found that it would be far less harmful to raise revenue than cut programs and services when trying to rebuild an economy.

For further reading, here are eight strategies we can use to close the budget gap.

Right and left alike should agree that a revenue system designed for a 1930 economy isn’t going to work in 2011. Preserving critical public structures preserves jobs, and that should be priority one.

10 Comments

  1. Jeff S

    January 30, 2011 at 1:46 pm

    Another article supporting change without any details.

    “Modernize the system” sounds great, but does not actually mean anything. It concerns me that proponents of this mystery change seem unwilling to detail a plan.

  2. Jeff Shaw

    January 30, 2011 at 1:57 pm

    The principles of such a plan are outlined in the second link. The comprehensive Budget & Tax Center revenue plan will be out next week.

    BTC does a comprehensive revenue plan every year, actually. We talk about the basic principles behind such a plan all the time. They include:

    * broadening the base of the personal income tax and sales tax;

    * Requiring combined corporate tax returns for big out-of-state companies, which would help local small business;

    * eliminating loopholes and special tax breaks

    * maintaining the state Earned Income Tax Credit (EITC), which benefits working families

    * Require a tax incidence analysis (i.e. analysis showing the impact of taxes on taxpayers of different income levels) for the entire state and local tax system every two years and for any proposed changes that would alter revenues by more than $20 million

    This would modernize an outdated system and require an evidence-based approach to tax policy. It would work better, be fairer and make more sense for the world we actually live in, not the world we lived in 8 years ago.

    If that’s not specific enough, wait a week and watch the blog.

  3. Alex

    January 31, 2011 at 7:52 am

    “Modernizing the revenue system” is the new buzzword for higher taxes. Very original.

  4. Jeff Shaw

    January 31, 2011 at 8:04 am

    No, “modernizing the revenue system” means “making the revenue system reflect the service-based economy we have now, not the manufacturing-based economy we had in 1930.”

    Broadening the base actually allows for a lower tax rate. Besides that, the Earned Income Tax Credit is a tax cut for working families. It’s just a system that makes more sense for the North Carolina of today.

    Also, you mean “code word,” not “buzzword.”

    Other than those things, great post!

  5. Alex

    January 31, 2011 at 2:15 pm

    Unfortunately, there are some major inconsistencies in your response. The move to a service economy and lower wages will actually shrink the base as more folks move into a non paying tax bracket. This increases the overall percentage for higher wage earners or the “rich” as you usually call them, and leads to a higher percentage of folks who pay nothing in income taxes, roughly estimated at 50 %. Earned Income Tax Credit is not actually a credit because these folks pay nothing at all, but simply receive a government subsidy. This should not even be discussed in a “revenue” discussion.

    other than these things,,,, a great response.

  6. Jeff Shaw

    January 31, 2011 at 2:33 pm

    Look, these are fairly simple concepts. When most of the economy was based on manufacturing, it made sense to write the tax code based around that. That’s no longer the case.

    Broadening the base of the sales tax to include services instead of just goods would change that to reflect new realities.

    It would make the system more adequate, stable and fair. It would create a stable revenue stream with (yes) lower rates across the board. That’s indisputable.

    When you construct a revenue plan, you should consider all aspects of the situation. The evidence overwhelmingly says that when you put more money in the hands of working families, the economy performs better. An effective revenue plan would fund vital public investments while maximizing economic performance, which is what these measures would do.

  7. Mico

    January 31, 2011 at 3:13 pm

    I would love for you to explain to us why you think the tax code is based on manufacturing, and not services. The tax code is built on income levels, not where the income is derived from. State income tax comes directly from the federal tax calculations all based on income, and not related to any particular job.

  8. Jeff Shaw

    January 31, 2011 at 3:16 pm

    You have to look at the economy in its totality, and the shift from a manufacturing economy to a service-based economy is one high-profile example. One way to address that shift is to broaden the base of the sales tax to include more services, since services are more important now than they used to be, and by doing so we could lower the overall rate.

  9. James

    January 31, 2011 at 5:19 pm

    We already pay one of the highest state income taxes in the Southeast, and then the highest gasoline tax,and now you want us to pay tax for every little service we receive. Thanks, but no thanks Jeff to your revenue “modernization”. It sounds like a lot of bull to me.

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