When the tax cut bill comes due
RALEIGH -- North Carolina legislators have reached the proverbial fork in the road regarding overhauling the state’s tax structure.
Over the next few days, two courses lie before House and Senate negotiators: Agree to disagree, set aside an agreed-upon amount of money for the any future cost of tax reform, and try to work out a plan in the future; or reach a compromise that will surely mean eventually carving out close to $1 billion from the state’s revenue stream.
That $1 billion figure would represent roughly 5 percent of the state’s general operating fund.
It is likely that any compromise will approach that kind of a tax cut because the Senate wanted to cut even more, $1.3 billion. The House’s plan would have eventually cut $580 million a year.
As for that Senate tax plan, the liberal N.C. Budget and Tax Center estimates that 49 percent of the tax cut would got to the top 1 percent of earners in the state.
Should a tax plan pass, legislative leaders and Gov. Pat McCrory will surely beat their chest and trumpet about how they have slain the tax reform beast. They will be joined by conservative groups that have now decided tax reform was always about economic growth and not about creating a tax system that more accurately reflected economic activity.
You can expect those same lawmakers and conservative advocacy groups to be a bit quieter when the bill comes due a few years later.
That bill will be paid in a few ways.
The first is that legislators will begin to pass hundreds of millions of dollars in new users fees. Park and museum admission will go up; court fees and speeding ticket fines will rise; license fees will increase.
North Carolinians can also look forward to a new spate of double-digit tuition increases at the state’s public universities.
When recessions have dampened tax collections in the past, the response from legislators has been to cut university budgets; university administrators responded to those cuts by increasing tuition.
There is no reason to think, with a massive tax cut that would reduce state revenue by about as much or more than either of the last two recessions, the same kind of tuition increases would not follow.
Finally, a tax cut on the state level will be replaced with property tax increases at the local level, as changes to the tax law and cuts in services ratchet up pressure on local governments to plug revenue holes or fill service voids.
You don’t need to be omniscient to see these responses coming.
You only need understand two things: one, legislators appear poised to pass a tax cut that they don’t pay for until three or four years later; two, as much as everyone would love to believe that waste abounds in state government and can easily be targeted, cutting 5 percent from state operations without inflicting serious harm on services that people expect and rely upon is pretty much impossible.