More Light on the Tax Debate

More Light on the Tax Debate

- in Weekly Briefing

New Carolina Issues Poll Produces Instructive, Timely Results

By Rob Schofield

Quick Take:

  • NC Policy Watch, North Carolina’s leading provider of commentary and analysis on state public policy issues, released the latest edition of its Carolina Issues Poll today.
  • According to the survey of likely voters throughout the state, North Carolinians strongly oppose a plan favored by state Senate leaders to cut income taxes on the wealthiest North Carolinians, but support extending the quarter cent sales tax hike first adopted in 2001.
  • The poll also gauged voter attitudes on other state tax issues including an earned income tax credit and proposals to tax real estate transfers and realtor fees, as well as the issue of public subsidies for private colleges and universities.

Voters: No Income Tax Cut for the Wealthy

One of the most contentious issues in the ongoing state budget negotiations is the Senate’s stubborn adherence to its plan to cut income taxes on the wealthiest 60,000 North Carolinians. Right now, individuals with incomes of $125,000 and above and couples with incomes of $200,000 or more are taxed at a rate of 8%. Though both the House and the Governor would retain the current rate, Senate leaders are demanding that the rate be pared to 7.75% at a cost to the state next fiscal year of $94 million.

Not surprisingly, the reduction in revenues resulting from the Senate’s proposed rate cut has complicated budget negotiations substantially and forced several programs – including the House’s proposed Earned Income Tax Credit for low income people – onto the chopping block.

According to the Carolina Issues Poll, most voters do not agree with the Senate’s position. When asked if they would support a proposal to cut the income tax on the wealthy, 66% said “no,” while only 24% said “yes” – a ratio of almost three-to-one.  

Voter attitudes on the Senate’s proposed income tax cut are reflective of a similar mind-set on the broader question of what taxes the wealthy ought to pay. As has been well-documented in this space and others, wealthy North Carolinians actually pay a much smaller percentage of their incomes than low and middle income taxpayers in total state and local taxes combined (this despite paying a slightly higher income tax rate). When confronted with this fact, voters overwhelmingly support raising taxes on upper income earners in order to bring about a higher level of parity. Indeed, when asked if they would support a law that made the wealthy pay a similar total tax rate to everyone else, 72% of voters said “yes,” while only 20% said “no.”

Voter Attitudes: Complex, Sophisticated

Interestingly, the overwhelming voter opposition to an income tax cut for the wealthy does not seem to be the result of a simple knee-jerk “me first” reaction. Instead, as can be seen from the responses to several other questions, respondents demonstrated a rather high degree of sophistication and willingness to support policy proposals that include sacrifice for the common good.

For instance, while almost two out of three voters (64%) remained true to longstanding American traditions by expressing a desire for lower overall state and local taxes (no surprise there), an overwhelming majority voiced support for retaining the extra quarter percentage point on the state sales tax that had been scheduled to expire on June 30.

When asked to choose between a $45 per household benefit (the average amount that households would see from a sales tax cut) and $200 million in reduced public spending for public services (the amount of revenue that would be lost from such a cut), less than one in three (30%) chose the tax cut, while nearly two in three (63%) expressed opposition to the cut.

In a similar vein, poll respondents expressed solid support (three-to-two) for adoption of a new state earned income tax credit – a program that would benefit low income workers and their families by providing them with a larger income tax refund in compensation for some of the state and local taxes they pay. Here again, voters strongly endorsed a proposal that, for most, emphasizes sacrifice and the common good over individual self-interest.

Voters also voiced strong preference for the common good in the realm of business taxation – where, by a two to one ratio, they endorsed a tax policy change commonly known as “combined reporting.” Combined reporting is an income tax rule used by several states that prevents large, multi-state corporations from funneling profits earned in North Carolina to states like Delaware and Nevada in order to reduce tax liability.

Finally, the complexity of voter attitudes was also on display in the results to two questions touching on the controversial issue of land transfers. As almost all are aware, the state’s realtor and homebuilder lobbies have been running a multi-million dollar media campaign against proposals that would allow individual counties to hold voter referenda on a small land transfer tax. The tax could help alleviate the cost of infrastructure expansion in high growth counties.

Notwithstanding the industry’s non-stop anti-transfer tax campaign (a campaign to which there’s been no organized media opposition), voters remain fairly closely divided on the issue – with “no” responders only outnumbering “yes” responders by a 49% to 40% plurality. Moreover, voter sympathies on land transfer taxes do not carry over to the realtors themselves. When asked if they would support a small tax on realtor fees to help pay for costs associated with growth, respondents said “yes” by a margin of 54% to 38%.

Aid to Private Universities

In addition to the broad subject of taxes, the new Carolina Issues Poll also samples voter attitudes on another more specific issue before state policymakers: the question of public support for private universities. For some time, North Carolina has budgeted tens of millions of dollars per year to help subsidize the tuition of resident students who attend North Carolina private universities – much of it without regard to household income. This policy has sparked controversy and at least a couple of attempts to repeal or limit the subsidy. During the House budget debate, a proposal to limit the subsidy to those with demonstrated financial need failed in the Appropriations Committee.

According to the new poll, the subsidy is opposed by an almost two-to-one majority –

58% to 31%. Perhaps not surprisingly, voters also favor (by nearly a three-to-two ratio – 50% to 33%) the proposal advanced in the House Appropriations Committee to limit the subsidy to those with financial need.

Policy Implications

While each of the new poll results offers important pieces of specific guidance for state policymakers, as a general matter two major themes are clearly discernible. First, voters are deeply suspicious of government policies that provide special benefits to the rich and powerful. Whether it’s the Senate’s demand for an income tax cut for the wealthy, the current absence of any serious proposal to adopt combined corporate income tax reporting, or the state’s continued subsidization of upper income private university students, voters are clearly skeptical of such policies.

The second obvious theme is that voters are receptive to policies that call for shared sacrifice and public problem solving – so long the effort is truly a shared endeavor. Hence, the popularity of retaining the extra quarter cent on the sales tax and adoption of a proposed state earned income tax credit and the strong support for greater sacrifice from groups who are perceived to be winners in the current economy:  the wealthy, large corporations and realtors.

To the extent that lawmakers wish to craft a final budget that aligns with public attitudes, they would do well to take these themes to heart.

Click here for a copy of the Carolina Issues Poll 

 

About the author

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina.
chris@ncpolicywatch.com
919-861-2066