The Senate's unexpected pitch

By Scott Mooneyham | Jun 13, 2013

RALEIGH -- For the last decade, as state legislators and other state leaders have spoken about reforming North Carolina's tax structure, not many have broached the subject without uttering something about the current code being antiquated.

Republicans, Democrats and anyone in between who has taken up the cry of tax reform almost always mentions that this state's tax code was largely written during the Great Depression.

The reason that matters is because the economy was a goods-based economy then. The state sales tax, one of the three main pillars of the state's tax structure, captured most retail sales transactions.

It doesn't now.

Today, a majority of retail sales transactions involve services, most of which are not taxed.

That basic problem spawned the push for tax reform in North Carolina.

And a tax overhaul plan expected to be given final approval by the state Senate early next week does not address that basic problem.

Instead, after scuttling an earlier, comprehensive tax plan, senators are poised to approve a plan that is a tax cut, not tax reform.

It would eventually cut $1.3 billion in taxes a year on a state general operating budget that, this coming year, will total about $20.5 billion.

Senate leaders would achieve that tax cut mostly by eliminating the corporate income tax and reducing the personal income tax to a flat 5.25 percent rate, while also eliminating most income tax deductions.

There are some other changes -- including dropping the local sales tax on food but then allowing counties to reimpose it -- but most of the tax cut is accomplished with the broad strokes above.

As I've noted previously in this column, tax reform was never going to be easy. One of the casualties appears to be the Senate's chief tax architect, Republican Sen. Bob Rucho of Charlotte, who quit his chairmanship of a powerful Senate committee as the latest plan was unveiled.

Rucho had spent weeks authoring that earlier, comprehensive Senate tax plan.

But other Senate leaders decided to ditch that proposal, which would have put sales taxes on just about every service, because it angered nearly every interest group in the state.

Their alternative, though, is difficult to see as serious public policy. It looks more like political gamesmanship.

Senate leader Phil Berger touts the lower tax rates as a way to help to improve the state's business climate.

But he and other Senate Republicans ignore the damage that carving out better than 5 percent from the state's revenue stream will inflict on another key driver of economic prosperity, the state's community colleges and universities.

Meanwhile, Berger and friends have undermined a more realistic approach to tax reform taken by Gov. Pat McCrory, House Speaker Thom Tillis and his fellow House Republicans.

Throwing a high, hard fastball to a new governor and the GOP's current, presumptive U.S. Senate nominee (Tillis) sure doesn't look much like team ball.

And thinking that any of the players could win on tax reform without some team ball seems pretty unrealistic.