The sudden collapse of Louisiana Governor Bobby Jindal’s popularity in the state should serve as a warning for North Carolina tax reformers hell bent in scrapping the progressive income tax in favor of a regressive increase in the sales tax. Jindal, who only a few weeks ago was considered a major presidential contender, had to pull his tax proposal after polls showed his approval rating plummet to 38%.
In North Carolina, Republicans have offered similar proposals and they are likely to receive the same welcome. That said, North Carolina needs tax reform to make its tax code reflect the realities of our 21st century economy. The debate is going to anger people on all sides, but real reform offers leaders on both sides of the aisle a chance to step up and provide the type of political courage voters claim they want.
The recent recession illustrated the flaws in our system. North Carolina saw a dramatic loss in revenue, partly because of our heavy reliance on income taxes. In addition, our sales tax has been focused on goods even as we have shifted to a more service-based economy. And while businesses complain about our corporate rate, we hemorrhage revenue through loopholes that allow multi-state corporations to shift profits to lower tax states.
Tax reform is going to be messy. Business interests are going to fight taxes on services and progressives are going fight any attempt to shift the tax burden from corporations and the wealthy to the middle class. The solution is a more stable revenue stream that can better survive economic cycles while keeping the burden low on families who are still climbing out of the recession. Reaching a sound solution might be bad for political careers and campaign coffers, but it will be good for the future of North Carolina.