NC Budget and Tax Center

First Filing of Tax Reform Legislation

The first official tax reform bill was filed yesterday by Senators Clodfelter, Hartsell, Jenkins and Meredith.  The legislation takes a comprehensive approach, proposing significant changes to the personal, corporate, franchise and sales taxes including: the reduction of personal income tax rates to a single 6% rate with a zero bracket on income under $11,000 and elimination of the state EITC, the reduction of the corporate income tax rate to 6% and elimination of a number of loopholes and tax breaks, the expansion of the sales tax base to some services, a decrease in the state sales tax rate and the sharing of food tax revenue collected locally with the state.

Unfortunately, the overall plan is based on the false premise that tax cuts are necessary to support economic growth.  Research released just yesterday shows that the biggest tax-cutting states in the 1990s  experienced slower income growth than other states on average, and states that enacted major personal income tax cuts in the 2000s prior to the recession were as likely to lose economic ground as to gain it.

More complete analysis will be forthcoming on this proposal.  But at first glance, these tax cuts are unlikely to boost the state’s economy while harming the overall ability of the state’s tax code to balance  contributions from taxpayers across the income spectrum.

7 Comments

  1. Doug

    March 22, 2013 at 1:09 pm

    You cannot say tax cuts are a false premise for growth. You have to take into account the fact that the politicos usually increase spending even more than the projected increase in receipts that result from economic growth. Of course that does not fit your model to confiscate all the income possible when government has never increased growth through spending.

  2. Doug

    March 22, 2013 at 1:18 pm

    Oh, and here are a few stories you can google that prove your premise is false, this is just three of :

    http://www.forbes.com/sites/mikepatton/2012/10/15/do-tax-cuts-increase-government-revenue/
    http://news.investors.com/ibd-editorials-perspective/101712-629790-data-debunk-deficit-exploding-tax-cuts-myth.htm?p=full
    http://www.washingtontimes.com/news/2010/feb/3/bush-tax-cuts-boosted-federal-revenue/

    And even one that admits that some spending increase may be needed, which if you stick to the traditional GDP formula is somewhat true…unless you want to continue mortgaging our future.
    http://www.usnews.com/opinion/blogs/economic-intelligence/2012/06/29/economists-agree-tax-cuts-cost-revenue—

  3. Gene Hoglan

    March 22, 2013 at 2:01 pm

    Lower income growth and job rates are part and parcel of the austerity agenda. Depressed wages and fewer jobs means more people are desperate and willing to settle for part-time low-paying work. The decreased tax base creates justification for further guttting government services, while the rich laugh all the way to the bank.

  4. david esmay

    March 22, 2013 at 2:41 pm

    Doug that’s exactly what you can say, because tax cuts don’t stimulate economic growth, but add to debt and deficits, which are then held up as an excuse for more tax cuts, which leads to more debt and deficits, which are then held up as an excuse for more tax cuts. Tax cuts such as these are nothing more than a free lunch program for the wealthy and corporations and undermine society and the quality of our lives. The wealthy and corporations are not victims, but victimizers.

  5. david esmay

    March 22, 2013 at 2:49 pm

    This how ignorant Doug’s statement is, while corporate profits have skyrocketed, corporate taxes make up only 8% of federal income taxes. When this country was at is most prosperous with a burgeoning middle class it was 47%. Personal income taxes are at their lowest levels in 80 years, yet our opportunities, quality of life, and incomes are in regression.

    People like Doug, the tools at the Cato Institute, John Locke Society, Friedman and Von Mizes disciples, etc. sell these lies to the ignorant with no historical data or evidence to support their assertions. These are the same morons that think public parks are a socialist invasion.

  6. david esmay

    March 24, 2013 at 1:30 pm

    The only thing tax cuts do, is line the already deep pockets of corporations and the wealthy.http://www.usnews.com/opinion/blogs/economic-intelligence/2012/06/29/economists-agree-tax-cuts-cost-revenue—

  7. Doug

    March 26, 2013 at 10:25 am

    tax cuts give regular citizens more in their pocket, thus increasing their abiltiy to stimulate the economy. The opposite is true of tax hikes, just wait until the economic data comes out after the Obama payroll tax increase a few months ago, I know the company I work for is already seeing the effects.