Opinion: Daily Journal

Another Way to Tax

RALEIGH — After three years of tax increases in North Carolina — more than a $1 billion worth at the state level and hundreds of millions more imposed by city and county governments — taxpayers are understandably wary about what lawmakers in Raleigh will do next.

Don’t worry, say Gov. Mike Easley and legislative leaders as the 2004 session approaches, this is not a year to expect additional tax hikes (noticeably, there are few promises about 2005). Indeed, the governor has proposed some modest tax relief. More likely would be higher taxes at the local level, where the 2004-05 budget cycle is beginning and many jurisdictions are projecting another round of fiscal deficits.

But it would be a mistake for fiscal conservatives in North Carolina to fixate on the possibility of legislated tax increases. They are almost always unnecessary, of course, given that government already takes too much of our money to spend, and they impose significant constraints on our economic prosperity and our personal freedom. Official, on-budget tax increases are not the only way that government taxes your income, however. Rules and regulations are essentially a form of taxation, albeit a less obvious one, in that they require private households or businesses to devote a portion of their wealth or income to a public purpose, or at least what should be a public purpose.

Regulatory costs are every bit as inhibiting to economic growth as taxes are. In some ways, they are a worse jolt to the economy because their burden is so inequitably shared. Small business, lacking the staffing and institutional knowledge necessary to comply with ever-changing rulemaking, often bear a disproportionate burden. A 2001 study estimated that regulatory costs averaged about $8,100 per American household (representing about half of the on-budget tax burden). Viewed from the business angle, the study quantified roughly $7,000 per worker in small firms with fewer than 20 employees, which was 60 percent more than the average cost per worker for large firms with more than 500 employees.

As Carolina Journal‘s Donna Martinez reported just a couple of days ago, much of the compliance costs associated with government regulation stem not from a prohibition against doing something but from interminable delays in obtaining permission. There appears to be a surprising degree of randomness in where the delays occur; it isn’t always the case, for example, that more complex matters take far longer than what would seem to be routine ones, or that agencies with lots of staff do their work more expeditiously than smaller ones do. Moreover, regulations don’t always turn out the way proponents expect them to, as evidenced by the mess created by a 1996 telecommunications law that many said would result in greater competition and capital investment. In most cases, it didn’t.

There is no shortage of proposals to reform the regulatory process, and some of my colleages at the John Locke Foundation have sketched them out in reports and studies over the years. It seems to me that a good starting place woudl be to recognize that regulation is another way to tax. Treat it accordingly.

Hood is president of the John Locke Foundation and publisher of Carolina Journal.