by Becki Gray
Former Senior Vice President, John Locke Foundation
Tax reform has been discussed seriously in the General Assembly and the McCrory administration for six months now. We know that North Carolina’s seventy year old tax system is outdated, cumbersome and overly complex. We know that plans on the table constitute real reform and puts money back in the hands of those who earn it. We know that projected revenue will provide for core functions of government. We know that competitive tax rates will result in economic growth and job creation. We know that tax reform is critical to recovery from the recession and a long term healthy economy. We know that tax reform will get people back to work and off unemployment, able to provide for their families and less dependent on government.
We also know it is important to keep promises.
Then candidate McCrory and legislative candidates said during the 2012 election campaign that they would deliver meaningful tax reform, if elected. And elected they were – by large margins with super majorities in both legislative bodies and a Republican governor for the first time in decades. Voters expect them to keep their promises.
They promised to eliminate special carve-outs and tax exemptions. Many of these were set to expire last session. A bill was passed that delayed all phase-outs and sunsets of these exemptions while tax reform was worked out. Those exemptions are set to expire at the end of 2013. Companies are willing to let the exemptions go as long as they can count on a fair and stable tax system in the long run. But take away the exemptions AND no tax reform? Most companies would see that as a tax increase and they would be right.
Doing nothing would concede that the democrats had it right – found the right level of spending, the right level of government growth and the right level of taxation. That tax rates for individuals, for corporations and for sales are all applied appropriately, that it is fair, equitable, and brings in just the right amount of revenue. Yep, do nothing and concede that the current system is just right.
Philosophically all the plans on the table do the same thing – reduce and flatten the personal income tax, phase out or reduce the corporate tax, and broaden the sales tax base. There are some differences around the edges but even these seem close enough. The House plan would reduce revenue $1.77 billion over five years while the Senate’s $3.28 billion reduction is a bit more aggressive. Why not meet in the middle at $2.52 billion? That would be well under a 5% reduction in revenue, hardly a devastating hit. Reducing the corporate rate to 3% and personal to 5.75% would make us competitive with our neighbors. Let’s at least get started.
If we’re right – that real tax reform will stimulate the economy, economic growth will produce more revenue, not less. We should expect more employers, more jobs, fewer North Carolinians dependent on the government and more money in the state’s coffers. And a re-structured tax system will leave more money in the hands of hard working families, businesses and entrepreneurs. As Senator Berger said, “If you’re going to have more employees, you’ve got to have more employers.”
There is a lot at stake for decision makers. After more than a century, Republicans control the House, Senate and the Governor’s office. Can they collaborate and reach consensus among themselves or will political bickering played out in the daily media derail reform? Can they overcome extreme pressure from special interests whose only interest is preserving special treatment? Will this opportunity for careful, thoughtful and firm leadership be wasted? What groundwork is being laid for other reforms, other negotiations? Why is doing what was promised so hard?
They promised they were different, that they would change things in North Carolina. They would tackle the hard problems, stay committed, turn this economy around, put North Carolina back on top. They promised they’d deliver. It’s time. Doing nothing is not an option.