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Tax shiftIn 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.”

Commentary

You have to hand it to the modern class of plutocrats that dominates the American economy. It’s increasingly clear that a goodly number of them really have no sense of shame or boundaries. The latest and powerful exhibit for this proposition can be found in a new story in the New York Times entitled “For the Wealthiest, a Private Tax System That Saves Them Billions.”

Here’s the gist:

“With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means.

In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune.

All are among a small group providing much of the early cash for the 2016 presidential campaign.

Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.

The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.”

The story goes on to explain the creepy and outrageous details of how this obscene money grab by hedge fund managers and other fabulously wealthy parasites has come to fruition (and has been greatly abetted by the Right’s ridiculous and destructive war on the I.R.S.).

All in all, it’s apt story for North Carolinians to ponder at the conclusion of another year in which their own state government has handed millions upon millions to the state’s wealthiest residents while actually raising taxes slightly on folks at the bottom. Let’s hope it causes even some local market fundamentalists to reevaluate their stance and spurs people of all ideologies to action in 2016.

Commentary

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In case you missed it, be sure to check out today’s second installment in our new special report: “Altered State: How 5 years of conservative rule have redefined North Carolina.” “Public investment falls, tax responsibility shifts” is written by Alexandra Sirota of the North Carolina Budget and Tax Center and it documents the amazing shift that has occurred in how North Carolina funds government — a shift that has been engineered by the state’s conservative political leadership. Here’s the opening:

“Public investments are essential building blocks of long-term economic growth and shared prosperity. Decades ago, North Carolina diverged from its Southern neighbors by investing in good roads, quality public schools and universities and early childhood programs.

Since the official recovery began in 2009 — when rebuilding from the Great Recession would have been possible — state lawmakers have turned away from that tradition, choosing to sharply limit public spending in favor of tax cuts. Overall, state support for services in the 2016 fiscal year will be nearly a full percentage point below historic investment levels as a share of the economy.

"State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years."— "A Summary of the Fiscal Year 2015–2017 Budget," BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

“State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years.”— “A Summary of the Fiscal Year 2015–2017 Budget,” BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

In fact, state spending as a share of the economy — measured by state personal income — has fallen every year since 2009. The new budget continues this trend, and caps off the only period in more than four decades in which state spending declined as a part of the economy for more than five straight years.

The tax code has been radically transformed since 2010 in a way that makes adequate funding 0f core public services more difficult.

Click here to read the entire essay. And be sure to check back at the Altered State website tomorrow morning and each day through December 21. We’ll be rolling out new stories over the next two and a half weeks on everything from taxes to public education to environmental protection.

Commentary

Gene NicholWhen it comes to eloquently assailing North Carolina’s far right political leadership for its shortsighted and mean-spirited policies, no one does it better than Gene Nichol. The UNC law professor is on his game this morning with an op-ed in Raleigh’s News & Observer entitled “An NC tax plan that’s an exercise in villainy.”

As Nichol notes, the decision to further shift the responsibility for funding government from the rich to the poor by raising sales taxes and cutting income taxes is as blatant as it is outrageous.

This section stands out in particular:

“I’ll be the first to concede that the governor and the General Assembly mean to do a lot. They want to make it harder for black people to vote. They want to stop women from controlling their bodies. They want to shame and stigmatize lesbians and gay men. They want to disparage and marginalize immigrants. They want to dismantle the public schools. They want to eliminate environmental regulation. They want to foster purchased elections. They want to lay low their political opponents. The list is long. They’re ambitious sorts.

But their true sweet spot, their principal raison d’etre, the campaign to which they return enthusiastically in each succeeding session, is taking money and benefits from the impoverished in order to give more to, and to demand less from, the wealthy. They seemingly believe the main thing wrong with North Carolina is that those at the bottom have too much and those at the top don’t have enough. They have converted our government to an exercise in villainy….

And this part too:

The McCrory era will be adjudged a dark and shameful chapter in North Carolina history – a last gasp effort to cling to legacies of privilege and subordination, to deny the promises of democracy and dignity.”

Click here to read the entire essay.

Commentary

Tax shiftThe lead editorial in this morning’s Charlotte Observer offers a compelling explanation and critique of yesterday’s “April surprise” in which state leaders announced that North Carolina has eked out a 2% budget surplus. The bottom line explanation: the Great Tax Shift in which average folks are paying more and the rich and corporations are paying less. Here’s the Observer:

“News of a surplus is indeed cause for relief. But before GOP leaders dislocate their elbows in over-exuberant back patting, let’s look closer to see how they achieved it….

The returns are in. And the numbers don’t point to an expanding economy as the main cause of the huge swing from deficit projections to surplus. Instead, the memo [from the legislature’s Fiscal Research Division] noted that tax refunds dropped by 57 percent this year (not the 35 percent predicted). It was by far the biggest drop-off in 25 years.

Personal income tax collections surged, giving the state $375 million more than the staff expected. Some of that came from bigger collections in small business income. No surprise there, since tax reform killed the $50,000 business income exemption such establishments enjoyed.”

GOP leaders say lower tax rates will draw more corporations and jobs to the state. But the new-found surplus didn’t come from new-found corporations. Wage growth is expected to be 1 percentage point below forecast for the current budget year, the memo says, and withholding tax revenue is projected at 3 percentage points below forecast. Corporate income tax and franchise taxes moved up only slightly since the staff’s February budget projections.

That means surging collections from small businesses and individual taxpayers – not corporations – turned the deficit forecast into a surplus.”

The editorial closes this way:

“GOP leaders say refunds are shrinking because they made paycheck withholding more accurate. The state’s keeping less of your money through the year. Even if true, that doesn’t change the bottom line fact that personal income tax revenue has surged.

Make no mistake. We do believe the state needs more money for schools and other public investments. But its leaders are lifting money from everyday taxpayers’ pockets while seeking praise for supposedly putting more money in them.

And for that sleight of hand, perhaps they do deserve a round of applause.

A sarcastic one.”

Read the entire editorial by clicking here.