Tax reform, state budgets and limited government

By Scott Mooneyham | Jun 12, 2013

RALEIGH -- Since they rolled out their tax reform proposal, leaders in the state House have been diligent in promoting it as a tax cut for all, something that does not penalize the poor.

By doubling the standard deductions on state income tax bills and sticking to modest changes in the state tax structure, the House has avoided the labeling of their tax reform plan as an attack on the poor, a claim that has dogged the more aggressive Senate plan.

"We think we have done a lot to try to mitigate any excessive burden on the poor," said Rep. David Lewis, a Harnett County Republican and the chief architect of the House tax reform plan.

Critics still point to a flat personal income tax — 5.9 percent, compared to the current escalating 6, 7 and 7.75 percent rates depending on the taxpayer's level of income — as a regressive feature of the plan.

The plan would also expand sales taxes to some services, like car repairs, and to movie and other entertainment tickets, with a very slight decrease in the overall tax. Electricity bills would rise with the full sales tax applied to power use. (It is now taxed at 3 percent.) The proposal would also lower the corporate income tax from 6.9 to 6.75 percent.

The plan accomplishes a key goal of legislative Republicans: It makes income taxes here more competitive with other Southeastern states.

What that means is that companies looking to locate or expand here are not going to automatically put a negative by North Carolina's name in the column for income taxes.

The plan would eventually result in an overall tax cut of about $600 million on a state general operating budget exceeding $20 billion.

So, you should probably favor this plan if you want to pay less state taxes and believe that state government in North Carolina can survive with 3 percent less money -- a real, dollar-for-dollar cut -- even as the population grows and gets older.

The current debate over the state budget is instructive in what that kind of cut might mean for the future.

Neither the Senate nor the House budget plans would provide raises for state employees.

The Senate budget plan envisions doing away with public school class-size limits, leaving it up to local school systems to make those calls; the House plan would begin diverting public school dollars to vouchers to send kids to private schools.

The House plan scales back money for enrollment growth at the universities; the Senate budget eliminates 4,500 teaching assistant positions in lower grades.

It is important to keep in mind that these cuts are occurring as state tax collections have begun recovering from the recession-related downturn.

This is what limited government looks like, not in the abstract or in fancy speeches filled with political rhetoric, but in reality.

There is no arguing about the effects.

The only argument is whether you see them as acceptable or not.