In their never ending quest to tilt it more and more in favor of themselves and their wealthy backers, state lawmakers are again touting a plan to shift North Carolina’s tax system away from income taxes and further onto the sales tax.
As Raleigh’s News & Observer reported in this article, the move was endorsed this week at a legislative hearing by a right-wing group that calls itself the Tax Foundation. Critics of the idea were not invited to speak.
Such a shift is a dreadful idea.
Not only will it make our tax system more regressive than it already is (thereby taxing the wealthy at much lower rates than the poor and middle class), it will make the system much less flexible and resilient to meet the needs of a growing state. While it does make sense to broaden the base of the sales tax to capture more economic transactions, this should be married with a plan to lower sales tax rates so that the tax does not become a monster.
For a healthy revenue system that remains stable and is better able to withstand the ups and downs of the economy, North Carolina needs a healthy balance of a progressive personal income tax, a broad-based sales tax and reasonable property taxes at the local level.
An editorial in this morning’s Fayetteville Observer puts it gently but accurately in assessing this week’s hearing:
“Legislators didn’t invite any opposing viewpoints. It’s clear that the architects of state tax policy want to more aggressively cut corporate and personal income taxes.
If the lawmakers had invited tax experts with differing views, they might have considered the impact that a shift to broader sales taxes has on the poor, who spend a larger percentage of their incomes on basic goods and services. It’s the same problem that plagues proposals for a “flat tax.” Wealthier people who don’t need all of their income for living expenses pay a far smaller share of their earnings in taxes. The shift away from income taxes and toward consumption taxes is one of the driving forces behind the growing gap between rich and poor in the U.S.
While we agree that some shift of sales taxes to services was unavoidable in an increasingly service-based economy, we hope state tax code writers move with caution there, lest they create even broader gulfs between the haves and the have-nots.”