Fitzsimon File

Now that state lawmakers have passed the budget, attention turns to lobbying and ethics reform and preparing for adjournment. Traditionally one of the last bills passed before the final gavel falls is the study bill, legislation that determines which issues will be the subject of the many study commissions that meet between legislative sessions.

Many studies don’t amount to much. Others lay the groundwork for important legislative initiatives like the House efforts on lobbying and ethics reform. Those came from a House Select Committee appointed by Speaker Jim Black.

There are already plenty of ideas floating around for study this year, but not much talk about the most important issue facing the state in the next few years, the growing problems and inefficiencies with the state’s tax system.  

If state lawmakers want an idea of how urgent tax reform is, they could check with their own fiscal research staff who prepared a memo earlier this session predicting a billion dollar budget shortfall next year if lawmakers follow through on plans to eliminate two temporary tax increases passed in 2001.  

That’s part of the state’s structural deficit, the booming growth that brings new demands for spending on education, health care, and transportation combined with a tax system designed 75 years ago based on economy that has dramatically changed.

The structural deficit is not news. Governor Mike Easley appointed a commission to study tax reform not long after he took office. The commission made a series of recommendations, a handful of which were accepted by the General Assembly, but the overall problem was largely ignored.

The Institute for Emerging Issues is focusing on tax reform this year. It was the subject of the Emerging Issues Forum held in February that brought national speakers to Raleigh. The Institute didn’t make specific recommendations, but the themes of the forum were similar to what every public and private entity that studies the issue recommends, broadening the tax base, especially for the sales tax, and ending special exemptions for certain products or industries.

The sales tax used to be an effective way to raise revenue. Most money was spent on buying goods that were taxed relatively uniformly. Now, more and more of the state’s economy revolves around services, which are not taxed, and internet sales, on which taxes are difficult for states to collect.

The most often used example is lawn care. If you buy a lawnmower to cut your grass, you pay the sales tax. If you hire a lawn service to take care of your yard, you pay no tax.

No one disagrees that the tax system is deeply flawed and threatens the state’s ability to pay for education and human service needs in the next decade. But so far, the General Assembly seems unwilling to get deeply involved in comprehensive tax reform.

This session lawmakers are headed in the wrong direction, approving sales tax credits for the motor sports industry, more breaks for the film industry and even exempting farmers from paying sales tax on baler twine.  That’s addition to continuing various tax breaks and tax credits used in recruiting new businesses, even if they penalize existing companies.

The problem of course, is that rewriting the tax code means taking on powerful lobbying interests who enjoy special breaks under the current system. Lobbying and ethics reform should make it easier for lawmakers to resist the special interests pleas for preferential tax treatment.

But that assumes that legislative leaders are willing to face the issue head on and so far there is little indication of that. Maybe it will come in the study bill that should surface later this week. 

Public interest groups of all stripes ought to demand it and so too should Governor Easley, who needs to renew his interest in tax reform to leave the state on sound financial footing when his term ends in 2008. 

It is not just tax fairness at stake. Schools, human services, and the quality of life in the state hang in the balance as the tax system continues to falter. It is time to fix it.

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This entry was posted on Monday, July 10th, 2006 at 2:16 pm and is filed under Fitzsimon File. You can follow any responses to this entry through the RSS 2.0 feed.