Fickle tax reform

North Carolina residents soon will learn more about the tax cuts enacted this year by the state legislature. For many, the initial lesson will come when they pay new or higher taxes.

Some people go to the movies on New Year’s Day. For the first time, the ticket will be subject to a sales tax — 6.75 percent in Guilford County. The theater will decide whether to absorb the tax or charge customers.

New sales taxes will apply to tickets for college or professional sporting events, concerts, plays and museums. Taxes will increase on manufactured homes and modular homes. New taxes will be put on service contracts, newspapers and meals purchased at college dining halls. Some deductions will be eliminated. One is for money put into the state’s college savings plan.

Other changes won’t take effect until July 1. On that date, breads, rolls and buns sold at bakery thrift stores no longer will escape the standard 2 percent sales tax on food. Also, the sales-tax holiday weekend held for years before school starts in August has been eliminated.

The income-tax bite will decrease, however. There will be one income-tax rate — 5.75 percent — instead of three — 7.75 percent, 7 percent and 6 percent. That represents a substantial break for taxpayers with the highest incomes, and a little relief for those with lower incomes.

Changes in allowed deductions and credits will create different impacts for different taxpayers. So will spending patterns.

People who make a lot of purchases where sales taxes are being added or raised could end up as tax reform losers. People saving for their children’s college education may be unable to save as much without the tax deduction. Those whose children are already in college will pay higher meal costs for the next semester, thanks to the new tax.

Corporate income-tax rates were also cut, which proponents say will make North Carolina more competitive with other states. This savings will encourage business to hire more workers, proponents predict.

North Carolina needs more people working, but it also needs to maintain its roads, bridges and ports and strengthen education from preschool through the university system. It’s possible budget cuts can do as much harm as tax cuts can do good. Because of the tax changes, state revenues are expected to decline sharply, unless they really do spur substantial economic growth.

Not everyone will pay or benefit equally. The liberal-leaning Budget & Tax Center projects that about 80 percent of North Carolina taxpayers will pay more, with almost all of the individual income-tax savings going to the wealthiest 5 percent.

The idea of tax reform has been promoted by Republicans and Democrats for years. It is supposed to transfer more of the tax burden from income to consumption and from production to services, reflecting changes in how our economy works. The legislature stopped short of full and balanced reform this year and apparently tilted the scale more to the favor of large businesses and wealthy individuals.

Average taxpayers should watch closely, noting how much they pay in sales taxes. What looks like small savings on their pay stubs may end up taking more out of their wallets.