Reforming taxes first, explaining details later is bad public policy
This weekend I spent about four hours trying to learn more about the tax reform measures pending in the General Assembly (Senate Bill 363, House Bill 998 and Senate Bill 394.)
Some aspects of the measures are perfectly clear, but other parts are extremely confusing. It is obvious the reform measures are a major change from how things were done in the past. That made plowing through page after page of mind-boggling tax specifics seem worthwhile, though it appears unlikely public comment or questions on the issue will influence the outcome. Both the Senate and House versions have already been passed. Now all that's left is negotiating the differences and a governor's signature.
The bill introductions make it clear the goal of all the tax reform proposals is to reduce the state’s dependence on income taxes and instead rely on business privilege fees and sales taxes. A second stated goal is to reduce the corporate tax rate, something state leaders contend is thwarting business development in the state. Another stated goal is also to modernize the state's archaic tax structure, which was created about 80 years ago.
I have no problem with updating the tax code, but my first question is, "where are the references to extending the sales tax to include a mandatory collection from online sales? There is certainly no more modern trend than doing business on line, yet requiring business owners who sell online to withhold sales taxes as is required from brick and mortar stores is strangely absent from tax reform discussions.
All tax reform bills reduce the personal income tax rate, which those crafting the bills contend will more than make up for the extra sales tax charges being added.
That will certainly be the case for those who see their personal income rate drop from 7.75 percent to the flat 5.9 percent as proposed in the House bill and even lower in the Senate bill. But those on fixed incomes — or low incomes — who currently pay 6 percent on taxable income up to $60,000, aren’t likely see save enough to cover the extra sales taxes.
The proposed sales tax expansions vary from an additional 4.75 percent tax on food to an extra 4 percent tax for electricity to charges for prescription medicines and nutritional supplements. Other services that would be subject to sales taxes include vehicle repairs, doctor visits, attorney fees and even landscaping or cleaning services.
Another provision would cap tax-deductible contributions to nonprofits at $600. During a time when nonprofit agencies have stepped up to help individuals hurt by the economic downturn or other circumstances in life, this seems unnecessarily harsh.
Currently, a portion of the sales tax revenues is deposited in a Public School Building Capital Fund to help with building construction and technology upgrades in public schools. That’s being eliminated under one tax reform proposal. State lottery funding is also being directed away from helping with school capital projects. That leaves few funding sources other than the property tax to cover major school capital needs in an area.
The changes included in the tax reform proposals are monumental, and little time has been set aside to discuss them in Raleigh, let alone share details with state taxpayers.
Passing legislation first and explaining it later is a bad way to conduct public policy.