It’s been five years since Phil Berger rewrote our tax code, and Democrats still lack a comprehensive tax reform plan. Little has materialized except suggestions that we avoid further tax cuts. Governor Cooper’s budget accepted the new starve-the-beast framework. Republicans manifestly rule the tax debate.
Progressives must mount a spirited challenge to GOP hegemony. The tax code is a major battlefield in the left-right contest. Tax reform changes government by definition. By redistributing resources, it also changes social structure and even our chosen conception of justice. NC Democrats can’t compete ambivalently in such a fundamental debate.
And our tax policy repertoire is not an empty void. There are options available to us. In 2013, when Republicans were gearing up for historic changes, the right-leaning Tax Foundation suggested four paths for North Carolina tax reform. Proposal four would have kept the system on its the 2012 revenue path while making the tax burden more progressive. Democrats should embrace the plan.
The proposal includes three basic parts. First, it would replace the current personal income tax with a simple 10% levy. Second, the corporate tax would be abolished. Third, the sales tax would go away too. We’d have a system that incorporates policies from Nevada, New Hampshire, and several of the bluest states.
This unique tax structure would be pro-growth and solidly progressive. Among liberal economists, an emerging consensus holds that personal income taxes don’t harm growth very much. But corporate taxes impact both investment and business-formation rates. Sales taxes are the worst offender when it comes to regressivity, so eliminating that tax would deliver a major windfall to low-income households. Every progressive goal would be served.
To be fair, this plan would disrupt local finances. We could solve that problem just as boldly. Like another state without corporate taxes, Washington, we could consider a state carbon tax. Revenues from the carbon tax would be shared with local governments. The amount of revenue given to each county would depend on population, and the extent to which local property values could serve as a basis to replace sales taxes with property taxes. Importantly, we would restore the EITC to compensate for the carbon tax’s regressivity.
Since the Easley era, NC Democrats have retreated from bold policy initiatives. Republican extremism has taken too heavy a toll for Democrats to remain timid. A new decade calls for new ideas, and taxes–the foundation of state government–could catalyze an era of change that is sorely needed.
Alexander Jones is an original contributor to PoliticsNC.
A little late to this discussion, but before I buy in to the ideas, I would need to see precisely what this does the a single person, small business owner, no dependents, income before taxes of say $50,000. How does this proposal interact with federal taxes on income? What happens to medical care costs as a deduction?
The point is that it is impossible to evaluate any part of this without additional information about details. Especially on the small, unincorporated businesses.
As for taxes on corporations being cut because it is bad for business investment, sorry, but I have heard that story for a long time. The primary investment large businesses have been making for about three decades is in pay level for the top tier corporate executive, their bonuses and health insurance plans, plus a few other perks. When they take the windfall from the recent federal tax legislation and genuinely reverse that trend, I will re-consider my skepticism.
Yes, the Democrats need to be bolder, but they also need to be very, very clear about who is going to benefit. I have no problem with profits, but I am sick and tired of seeing middle class folks losing ground every year and poor people being treated even worse. A bonus is welcome, but what we really need is significant wage increases EVERY year for both the middle class and the lower income workers. Large and many medium sized corporations are awash in cash and have been for a few years now. See any real trickle down?
Want some suggestions. Open up unemployment insurance to independent works, artisans, small independent shop keepers, and others for whom it is now closed. And make the system actually pay enough to get through a serious unemployment period. Let everyone over 40 or independently employed buy into Medicare. (or over 55, but move forward with something that removes the insanity of bankruptcy for any serious medical issue, or sending a low income family to a food panty after a minor medical bill, etc etc etc).
PS. I am not sure sharing any state tax based on population will be enough for the rural areas of NC. Might be wrong, but I’m not voting for something that leaves those areas with even less for schools, hospitals, and other civic needs.
@disgusted There’s no way any of this happens until SCOTUS bans partisan gerrymandering and Democrats retake the NCGA. I’m just trying to get ideas out there.
Omg a state carbon tax be still my heart
I know that the NC Budget and Tax Center (BTC) has many ideas on how to undo the damage that the NCGA has done since 2011. One is helping the poorest among us and taxing the richer. A few hundred or thousand dollars can be a huge boon to low wage earners, helping with necessities like shoes, clothes, food, shelter.
According to “First in Flight from the EITC – Low-Income Working Families Bid Farewell to NC’s Earned Income Tax Credit,” close to one million working families in North Carolina lost the ability to claim the state Earned Income Tax Credit (EITC) in 2014. They received from $22 to $272 only, but those can be significant amounts to those living in poverty. Also, low wage earners started being taxed on income of about $19,000 instead of $22,000. Again, very significant to people making so little money.
In 2013, NC lawmakers took away from the poor to give to the rich and to businesses, who arguably don’t need it. As the article says, “North Carolina lawmakers put an end to the tax credit and subsequently pursued deep tax cuts that primarily benefit the wealthy and profitable businesses.”
http://www.ncjustice.org/?q=budget-and-tax/btc-brief-first-flight-eitc-low-income-working-families-bid-farewell-ncs-earned
incoherent again/ Or idiotic. This addresses all the taxes to be eliminated but not what existing programs will be gone or where revenue would come from.
Of course it’s possible the writer is too stupid to notice? Or thinks his audience is?/??
Are you serious? I said the revenue would come from from raising the income tax to 10% and instituting a carbon tax. This is basic reading comprehension.
incoherant to me because my income tax is already 35 % so 10% would be lowering it, and a carbon rax means what?????
1. The state income tax is set at 5.75%. A 10% tax rate would raise significantly more revenue.
2. Carbon taxes levy a tax, in this case $10 per ton, on all carbon-emitting activity. See the link.
tried to rply and your site wouldn’t let me