Note: This is Part 4 in a series of posts on revenue modernization in advance of the release of the NC Budget & Tax Center’s 2011 Revenue Modernization Plan which has been moved to Monday, February 21st. You can read Part 1 and Part 2 and Part 3 here.
For years, North Carolina policymakers and private sector leaders have been discussing and developing plans for revenue modernization. In fact, there have been seven commissions on updating the state’s revenue system just since the early 1990s.
The message from these commissions has been consistent, starting with the first:
Modernization … requires that the state tax system be made more responsive to the future growth of income and consumption in North Carolina. If this goal is not achieved, then the General Assembly will be forced to result time and again to ad hoc measures to increase revenues or control spending. By their nature, ad hoc revenue and expenditure adjustments under severe budget pressure are unlikely to contribute to tax equity or tax modernization, except by accident
And yet despite this consensus that there is a problem and even with some general agreement on how to solve the problem, for years, the work of these commissions has remained on the shelf rarely seeing much in the way of legislative action.
There is reason to believe that elected officials will finally take action on this issue. Treasurer Cowell took a leadership position on the issue last month when she called for tax modernization to “create the structural financial stability needed for the future.” Representative Tillis and Senator Rucho have both stated that tax reform is on the GOP agenda. And many others have mentioned aspects of modernization from broadening the base of the sales tax to eliminating ineffective tax-code spending.
North Carolina’s leaders would not be alone in taking on revenue modernization. In Georgia and Minnesota, GOP-led tax commissions recently presented proposals for aligning the states’ revenue systems with the 21st century. In Colorado and Kentucky, proposals to improve the revenue system have focused on the personal income and corporate tax. In Rhode Island, legislation was passed last year to eliminate itemized deductions and increase the standard deduction making the income tax simpler and somewhat fairer. A Blue Ribbon Commission in Vermont recently suggested moving in a similar direction.
As North Carolina struggles with another budget shortfall year—caused by revenue levels failing to recover to pre-recession levels – the time is now for the General Assembly to take on revenue modernization.