Who will be penalized if the attempt succeeds? Not the high-end earners basking in the certainty that from 2020 onward, their income tax rate will be capped at 5.5 percent – no matter what situations or emergencies the state may face. That’s a lower top rate than prevailed a few short years ago, when additional income tax revenue, along with spending cuts, proved essential to balancing the recession-wracked state budget.
No, the pain will be felt mainly by people with modest incomes. Their income tax savings will be minimal, even with the higher standard deduction that’s on track for approval. But as the legislature looks for other revenue sources to meet costs that even small-government conservatives can’t ignore, these ordinary folks will end up paying more in sales taxes – taxes that amount to mere nuisances for the wealthy but a real burden to people already struggling to pay for necessities.
In fact, they already are paying more. Anyone who’s had to have a car repaired lately understands what’s going on, as the sales tax has been broadened to apply to various services.
Their way – forever?
Reducing and flattening the state income tax has been touted by the legislature’s majority Republicans as a way to make North Carolina more economically competitive – the unspoken assumption being that company execs will flock to states that lighten up on income taxes, both personal and corporate.
That assumption is dubious at best, not to say insulting to those executives who understand the importance of ample public investment in such priorities as education, the justice system, transportation and health care.
Tax cuts enacted since 2013 already are costing the state well in excess of $1 billion a year, compared to what would have been raised under the old rates. That has put immense pressure on budget-writers to hold spending down – a worthy goal in the abstract, but in practice akin to putting state government on a starvation diet – while they extend sales taxes and fees to help plug the gaps.
It might be said that, well, legislative Republicans by virtue of their election victories are firmly in control (a situation engineered in large measure by hyper-partisan and unfair redistricting, but that’s another story).
As the majority, and with a governor of the same party, they have the power to set tax and budget policies to their liking. That’s the way the system works (although again, elected officials are supposed to be accountable to the voters for their decisions to a degree that many members of this General Assembly have managed to avoid).
Yet what the Republican-dominated Senate wants to do is not simply to enact legislation reflecting its judgment in the here and now. It wants to block its elected successors from exercising their own judgment in meeting the challenges of the tomorrows.
Tricky triple play
Resorting again to a favorite pressure tactic, senators pulled off the shelf a proposed constitutional amendment sent over by the House last year and packaged two more proposed amendments in the same bill, known as House Bill 3.
The legislation would set statewide referendums on each of the amendments, with voting to take place in the general election on Nov. 8. It received final Senate approval on June 28, with no Democrats in favor.
All that the House had agreed to was an amendment regarding the condemnation of private property for public use – which the Bill of Rights already guarantees must involve just compensation.
Now, House members must decide whether to concur in a measure with a much wider scope and potentially dramatic consequences. And they’ll be expected to make that decision in the hectic final days of the current legislative session, with no chance for committee review or thorough debate.
To that injury, add the insult that the third proposed amendment bundled into H.B. 3 would – we’re not making this up – put language in the state constitution guaranteeing North Carolinians the right to “hunt, fish and harvest wildlife.” As if any of those rights were threatened. And as if any legislator without a political death wish would come out against them.
What’s more, the income tax amendment would require yearly deposits to an “Emergency Savings Reserve Fund” until the fund reached a certain target. Under the stipulated formula, that likely would mean salting away a sum approaching $3 billion.
Emergency savings are important, and the state budget already plows money into the so-called Rainy Day Fund – too much money, some would say. But the amendment would further hamper the ability of future legislatures to meet pressing needs, whether chronic or acute.
No cap, no lock
It’s true that the state constitution already sets an income tax cap of 10 percent – a provision that perhaps can be defended as a check on a General Assembly running wild with share-the-wealth fever, if such a thing can be imagined. Certainly it’s never happened. When the current round of income tax cuts began in 2013, the bracket for the highest earners under the then-prevailing graduated tax system was 7.75 percent.
Next year, the tax is set to drop to 5.499 percent – a reduction clearly of more benefit to well-off residents than to those who didn’t earn enough to put them in the top bracket. That’s a judgment the current legislative majority is entitled to make, even if the fallout is unfortunate.
But what if senators and representatives elected in years to come concluded that a return to a graduated income tax structure was in the state’s best interest? What if, to cope with another revenue-draining recession, it was again decided that the best way to keep the budget in balance was to combine spending cuts with tax increases?
The budget now on track to be approved by both the Senate and House may give North Carolina’s public school teachers badly needed raises and make a few other worthwhile gestures. But the overall picture remains one in which the state is reluctant and/or unable to make the level of broad public investment that would truly allow it to move ahead of its economic competitors and truly address the needs of all its residents — even those who live in depressed counties where opportunity is like an unreachable mirage in the desert.
Capping the income tax at 5.5 percent – permanently, or at least until the constitution could again be changed – would only make matters worse. Leaders in the House would perform a noble duty if they’d make sure, as the session’s end approaches, that the Senate’s effort to lock its tax philosophy into the constitution gets lost in the customary shuffle.
Steve Ford, former editorial page editor at Raleigh’s News & Observer, is now a Volunteer Program Associate at the North Carolina Council of Churches.