Progressive Voices

It is becoming quite clear that state leaders remain unconvinced that modernizing the tax system in North Carolina is something that must be done for the greater good. They have been presented, by the Budget & Tax Center and others, with endless high-quality research as well as pleas for them to "do the right thing". This strategy has failed. In fact, the latest blue-ribbon panel convened to develop a reform plan and build public momentum has seemingly vanished into thin air.

Perhaps it is time to put this issue before lawmakers in a different way - a way that is less focused on facts and values and appeals to their other side. That would be the side that always keeps its eye on the next election no matter how far off. If state leaders do not overhaul the state's tax system they may well become stars of the modern version of the 1837 Hans Christian Anderson fairy tale "The Emperor's New Clothes."

How is that? To begin with, government isn't really growing in this state, not at least relative to our income. The percentage of our total income consumed by state and local taxes is virtually unchanged in the last thirty years - hovering around 10%. But, (and this is a very important "but") tax RATES are up. For example, the sales tax rate was only 4% in the 1980's, yet today it is 6.75% in most communities. Similarly, income tax rates which ranged from 3 to 7% now range from 6 to 7.75%.

Secondly, state and local taxes in this state are simply not fair to low and middle-income taxpayers - a fact that the NC Budget & Tax Center have called attention to for more than 12 years now. Even after the state earned income tax credit is enacted this year low-income taxpayers will still pay the greatest share of their income in state and local taxes and the wealthiest taxpayers will pay the least. In this decade, the only major tax to be eliminated was the top income tax bracket which only affected the highest four percent of income-earners. Meanwhile, the taxes that have increased have been regressive, including the sales tax, the cigarette tax, the gas tax, and the lottery tax.

So, government isn't growing, tax rates are higher and therefore more visible, and low and middle income families increasingly pay more than their fair share.

Yet, when most state lawmakers are on the campaign trail they herald new investments like raising teacher pay or expanding children's health insurance. They talk very little about the critical services that are underfunded in North Carolina like mental health and the court system. It is much easier and politically expedient to tell people about a few "successes" than to tell voters what is really happening.

The fact is that tax rates must go up simply to keep a stream of revenue sufficient to maintain current services because the tax base is eroding. Just like when the base of a home erodes, it is sure to fall. In the long run public officials will not be able to keep up this charade. Regular working people will see that their taxes are going up but that they're not getting much more for it. Over time it will become clear to them that the real reason that their taxes are going up is so that the taxes of big corporations and the wealthy can be kept down.

This trend of allowing the tax base to erode, masking the erosion by raising rates primarily on regressive taxes, and then telling voters that the tax rate increases are for new investments will ultimately be seen for what it really is. If lawmakers don't soon address the issue of state and local tax modernization, they will find themselves sashaying down the streets of their home districts when, as in the famous fairy tale, a young boy will call out from the crowd "But he has no clothes!"

Elaine Mejia is the Director of the N.C. Budget and Tax Center

 Email This Post  Print This Post

This entry was posted on Monday, April 21st, 2008 at 7:57 am and is filed under Progressive Voices. You can follow any responses to this entry through the RSS 2.0 feed.