Tax reform rolling down the tracks

By Scott Mooneyham | Dec 24, 2012

RALEIGH -- After New Year's Day, the tax reform train in North Carolina will surely start rolling on down the tracks.

It remains to been seen whether the track around the bend will support its weight.

In years past, the train always got de-railed, one way or the other.

Former Gov. Mike Easley appointed a couple of panels to study changing the state's tax structure, but pretty much abandoned the effort as the budgetary pressures created by the 2000 recession eased.

Democrats in the state Senate, led by Charlotte's Dan Clodfelter, took up the cause, but never got too far.

At one point, current Gov. Beverly Perdue called tax reform a "huge must-do for me."

By 2010, it had slid onto her not-to-do list.

Now, another Charlottean, Republican state Sen. Bob Rucho, has become the big champion of reworking the state's tax structure.

Rucho, who is co-chair of the powerful Senate Finance Committee, sees the current system -- where the state relies personal and corporate income taxes for better than half of its general operating revenue -- as uncompetitive with surrounding states.

Reaching that conclusion, he cites figures showing that North Carolina, after decades of income growth, has been losing ground since 1997 when it comes to per-capita income as compared to the national average.

He also points to budget shortfalls and other trends over the last three decades that show the state's sales tax on goods as a less reliable source of tax dollars.

"The existing system isn't going to work now or in the future," he told me recently.

Rucho's solution, as currently crafted, is a lot more aggressive than earlier proposals.

Those previous plans focused on the sales tax, with a little corporate income tax cutting thrown in for good measure.

The sales tax proposals involved expanding the tax to cover services -- including hair cuts, car repairs and even legal fees -- while lowering the overall rate of the tax.

Rucho wants to do that and do away with the personal income tax, corporate income tax and business franchise tax.

To make up for some of the lost revenue, he would create a new business license fee that would be applied to all business, including smaller sole proprietorships.

The problem with Rucho's sweeping tax proposals is that they may shift more of the tax burden onto middle-class wage earners.

It is also less than clear whether they will bring in same level of revenue -- money used to pay the salaries of teachers and prison guards, and for Medicaid providers and their services -- as the current system.

Instead of saying no to Rucho's plan, Democrats may be countering it with a "yes, but.

State Treasurer Janet Cowell recently said that she plans to champion tax reform too, but a reform that will involve only lowering income taxes while expanding sales taxes to cover services.

"I commit to being a leader on tax reform," Cowell said.

Now firmly in charge in Raleigh, Republicans might not welcome that leadership.