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.