News: CJ Exclusives

Taxes and Vanishing Dreams

North Carolina families and businesses struggle under the burden

When Dick Carter lost his wife, Janet, to lung cancer last November, he was left alone to grieve for his soul mate of 24 years and to endure life-threatening challenges to his own well-being. Colon cancer, diabetes, and heart ailments are attacking the 79-year-old’s body, but failing health is only one of the serious worries facing this National Guard and Navy veteran. Carter, who lives in Wilmington, says he is under siege by North Carolina’s increasing tax burden and may be forced to draw out the equity in the home he and Janet shared, just to survive.

“The people who pile these taxes on us have little or no regard for people who are aged,” Carter said. “How far can it go in this country before people realize it can’t go any further?”

It might be easy for some to dismiss Carter’s predicament as the exception rather than the rule, but the numbers bear out his case. North Carolina, once considered a low-tax state, now carries the highest individual and corporate income tax rates in the Southeast. When combined state and local taxes are considered, only Georgia has a heavier burden within the region. Nationally, North Carolina now has the 25th highest state and local taxes as a percentage of income, according to the Washington-based Tax Foundation. That represents a huge jump up the list from 1998, when the state’s overall tax burden ranked 36th.

The curse of property taxes

Carter blames his dilemma mostly on his property taxes, which have more than tripled in 20 years, but he also points the finger at sales and other taxes eating away at his financial health. He’s quick to say that taxes don’t increase without sponsors, and this retiree doesn’t hide his disdain for public officials who support and enact them.

Carter was too ill to join his friends from the New Hanover County chapter of Citizens for a Sound Economy for the April 15 Tax Day rally at the Legislative Building in Raleigh. While his body is weak, his resolve is strong to make sure elected officials know their votes to increase taxes have serious, long-term consequences on the people forced to endure them.

A participant in last year’s rally, Carter happily tells how wonderful he felt when confronting legislators with his call for less government and lower taxes. His words, and those of countless others before him, went unheeded. The 2001-03 budget passed by the General Assembly included tax increases of $1.2 billion. This year, the House passed a $15 billion budget for the 2003-2004 biennium that exacts still more from taxpayers — about $860 million over the two years — by failing to allow “temporary” sales and income taxes to expire June 30 as promised when passed in 2001. A Senate budget plan would implement these tax hikes and add some additional ones, particularly on families with children.

After a lifetime of work in aerospace and aviation, Carter lives on his Social Security benefit and a modest flow of other income. He said it’s no longer enough to keep pace with the rising tide of taxes.

Carter recalls that his New Hanover County property taxes were $413 in 1983, the year he and his beloved Janet bought their home. Not long after that, they were annexed into the City of Wilmington, a move that brought additional levies. By 2002, Carter’s combined bill was $1,370, or about $114 per month. He owns his home free and clear, but to Carter, the condition of property ownership offers little or no protection from the government.

“If you don’t pay taxes, they take it (property) away from you, so you really don’t own it at all,” he said. Consequently, Carter believes property taxes are stripping hard-working North Carolinians of the assets they’ve worked a lifetime to acquire. “Personal property ownership has virtually ceased to exist in our country,” he said in a voice dripping with anger.

He’s not alone in his frustration. A recent Gallup poll revealed that 38 percent of adults identify the local property tax as the worst, least-fair tax, beating out income, sales, and Social Security taxes for the dubious distinction. That’s up sharply from a 1994 poll, the last time Gallup asked the question, in which property and federal income taxes competed for honors as the public’s No. 1 tax enemy.

One national expert reacted to the poll results by saying that unfunded federal and state mandates are the reason local politicians are raising property taxes. “Property taxes have been going up around the country and maybe this is a cumulative reaction to that,” Larry Naake, executive director of the National Association of Counties, told USA Today in an April 14 story.

Whatever the reason, it’s no consolation to Carter, whose concerns about health and finances force him to scrutinize every penny he spends. “I’m selective on any purchases, food included,” he said. He drives a 14-year-old car and has put off needed home maintenance, decisions he made partly because of a story he heard last year about a woman who moved out of her house because she couldn’t pay her taxes.

“It’s very hard to feel comfortable,” said the man who spent years helping the less-fortunate. He created a foundation in the 1980s to collect and donate much-needed medical equipment to Costa Rican hospitals.

Now that he’s looking to officials for tax relief, he can’t understand why his message doesn’t seem to resonate. “They (public officials) must know what they’re doing to people,” he said.

While Carter personifies the effect higher property taxes have on many North Carolinians, Betsy Talley can demonstrate how a seemingly small increase in sales tax can have devastating results on a small business.

Driven out of business by taxes

As Dick and Janet Carter shared their last remaining weeks together, Betsy and her husband lost their battle against North Carolina’s high sales tax rates. In September, the couple closed their furniture store and laid off all their employees.

“I got out because of taxes and regulations. It just wasn’t worth it anymore,” she said.

Talley said she used to relish the challenge and opportunity of the retail sector. In the mid-to-late 1990s she opened Ocean Highway Furniture in Ocean Isle Beach, about eight miles from the South Carolina border.

Brunswick County is beautiful, she said, and the market for furniture was healthy along the coast, thanks to full-time retirees from the north and those with homes for rent during the busy summer beach season. Because coastal weather takes a toll on furniture and homes, Talley enjoyed and relied on repeat business.
That is, until customers discovered the sales tax rate a few miles down the road in South Carolina was substantially lower.

Talley was forced to tax purchases at 6.5 percent. In South Carolina, her customers could buy furniture that was taxed at only 5 percent. On a $5,000 purchase, Talley’s customers could save $75 in taxes by simply buying in South Carolina. Over time the difference had the obvious negative effect on Talley’s business.
“Why should they (customers) buy from me when it’s cheaper right there?” she asked, shrugging her shoulders and staring down at her hands.

Talley didn’t close the doors without a good fight. She lowered prices and courted customers, but eventually, the cause was lost.

“It (the sales tax) cost me business and cut my profit. If I wanted a return customer I would have to play games, and it took the joy out of it,” she said. Finally, after five years in business, Talley called it quits and terminated her five employees. She said she simply couldn’t compete with the tax code.

“They think you’re not going to notice,” Talley said of legislators who increase the sales tax rate. But she and her husband not only noticed, they believe North Carolina politicians only know one direction when it comes to the sales tax. “How long before it is another half cent higher?” Talley asked.

If Gov. Mike Easley and some legislators get their way, it could happen soon. Talley laughs at the “temporary” label applied to the sales tax increase that’s scheduled to expire June 30. “That’s what they say about them all,” she said sarcastically. Both House and Senate versions of the budget extend the higher tax rate for two more years.

Talley has more than just a bad taste left in her mouth from her sales tax experience. She’s also got her tax bill as a vivid reminder.

“I’m borrowing money to pay my personal and business taxes for the year,” she said. “We’re some of those ‘rich’ people (Sen. Tom) Daschle talks about.”
Despite the disappointment over her business, Talley remains feisty and upbeat. She thinks something happens to legislators once they’re elected and face pressure from lobbyists and powerful groups.

“They develop an inside-the-Raleigh-beltway mentality. We need to get their attention as a group at least once a year,” she said. That’s why she’s an avid supporter and participant in the Citizens for a Sound Economy annual tax rally.

Hiding behind “the children”

Katherine Haney of Cary agrees with Talley, but thinks isolation from the real world isn’t the only problem afflicting legislators who vote to raise taxes. She cites the much talked about “education lottery” as an illustration of how some try to manipulate citizens into “helping the children.”

“They play on emotions rather than logic. I think they try to make us feel guilty,” said the 32-year-old member of CSE’s Wake county chapter. She attended the event a day after filing her federal and state income tax returns, an experience she called “extremely painful.”

Among Haney’s concerns are the state’s marginal income tax rates for individuals, which top out at 8.25 percent. Proponents of the high rates say North Carolina needs the additional revenue, but there is increasing evidence that the state’s 2001 and 2002 tax increases are holding back economic recovery.

According to the U.S. Bureau of Economic Analysis, from the third quarter of 2001 through the fourth quarter of 2002, North Carolina’s government income outpaced the regional average while its private-sector growth fell below average. During a similar period, North Carolina’s private-sector employers shed some 150,000 jobs, a far worse economic performance than in other Southeastern states

Haney provides a case study for those who believe high taxes rob the private sector of investment capital. “I would be paying down my home equity loan if my income taxes were cheaper,” Haney said, explaining why she advocates lowering rates, as well as overhauling the entire state budget and the way it is created.

“Everyone wants their program to go through. They never prioritize. Well, you know what? We don’t have the money,” she said of the state’s elected leaders who advocate for increased spending.

Haney emphasized it shouldn’t be that hard to understand what needs to be done. Just ask 12-year-old Clare Huber of Huntersville, who attended the tax rally with her dad, Bill.

“When there are less taxes, people have more money to spend. Then businesses can grow and they can hire more employees. So, the economy grows,” explained the sixth-grade student at Metrolina Regional Scholars Academy in Charlotte.

Maybe Clare should visit with state legislators.

Martinez is an associate editor at Carolina Journal.