The 2013 debate around tax reform started in earnest last week. After the Senate leadership recently announced its support for eliminating personal and corporate income taxes and relying on the sales tax to raise most of the more than $12 billion in lost revenue, various folks have been weighing.
We put out an analysis last week on the impact of this plan as outlined by the Civitas Institute and Arthur Laffer’s consulting firm. These changes would mean a huge shift in the tax load to poor and middle-income North Carolina taxpayers and generous benefits to the wealthiest individuals. And the plan doesn’t generate the economic returns that are so often promised with such proposals.
Nick Carnes, assistant professor of public policy at Duke University, notes in the News & Observer that after enacting huge income tax cuts in 2012, Kansas now faces a projected $800 million budget deficit. Oklahoma attempted similar tax cuts in 2012, but the effort was unsuccessful. Subsequently, Carnes notes that Oklahoma has added 12 times as many jobs as Kansas since May 2012. Furthermore, evidence highlights that the touted economic benefits are often unrealized or are related to non-tax factors as economist David Ribar shows in his analysis.
Of course, beyond reasons of who will pay and whether North Carolina can invest in important foundations for economic growth, there are also the practical challenges with pushing this kind of radical tax reform. The governor’s deputy budget director has even noted that the Senate leadership’s vision for tax reform is “very difficult to do and has a lot of impracticalities.”
Governor McCrory has stated that he is weighing a number tax overhaul plans and has yet to decide upon a particular course of action. Let’s hope he considers what years of bipartisan commissions and mainstream economists have agreed will work best to fix the real problems with our tax code.