The shifting of taxes
Published January 18, 2016
Editorial by Greensboro News-Record, January 16, 2016.
Taxing services is “smart policy,” according to the Tax Foundation, a Washington think tank that has the ear of North Carolina legislators.
It may not sound so pleasing to people who will carry a greater load of the state’s tax burden.
The Tax Foundation has moved North Carolina up in its rankings since Republican leaders began cutting corporate and individual income taxes and spreading the sales tax to tickets for entertainment events, college student meal plans and other things.
More may be coming. Some legislators want North Carolina to eliminate income taxes, as Texas, Florida and a handful of states have done. But this would come with a high cost for some.
More services are scheduled for taxation beginning March 1, with car and appliance repairs on the list. The Tax Foundation suggests additional areas for sales taxes: haircuts, accounting and legal work, medical services, even parking. The idea is to adapt tax codes to a service economy.
“The North Carolina sales tax base doesn’t reflect the modern economy,” Scott Drenkard of the Tax Foundation told the legislature’s Revenue Laws Study Committee this week. “The service sector is growing much more quickly as a percentage of the economy.”
While that’s true, the legislature has moved too hastily to cut taxes for some at the expense of others. Income-tax rates on top earners have fallen the most, while eliminating the earned-income tax credit has taken money from the poor. Meanwhile, the impact of sales taxes is often felt most sharply by people who get less benefit from income-tax reductions. That should not continue.
Slashing or eliminating income taxes might work in Texas, which collects energy industry taxes, or Florida, where a huge tourism industry pulls in massive sales-tax revenue. It may not be so beneficial for North Carolina.
The Tax Foundation is concerned about policies that suit business. A favorable business climate is desirable — and North Carolina always has provided that — but it’s wise to recognize that what suits businesses doesn’t automatically serve the public interest. Furthermore, the Tax Foundation isn’t concerned with whether the state receives enough revenue to pay for important services.
Local governments can be rightfully concerned about the impact of state tax policy on their budgets. The state can effectively pass down costs if it can’t afford to adequately fund public schools, for example, forcing counties to raise property taxes and add local sales taxes to fill the gaps, as some have done.
Neither does the Tax Foundation notice when state universities raise tuition every year to make up for cuts in state appropriations — another effect of cutting taxes. Then there are the higher “fees” placed on driver’s licenses, auto registrations and other costs that are really taxes by another name. And let’s not forget the lottery, which takes more money out of people’s pockets every year but isn’t called a tax, either.
There are legitimate arguments that tax cuts fuel economic activity. Because the recovery has generated natural revenue growth, the timing has been good to lower rates. But rearranging the tax landscape tends to produce winners and losers. Legislators should look more closely at who’s hurt and helped before rushing further along this path.
January 18, 2016 at 10:37 am
bruce stanley says:
