The following editorial was published in the November 2013 print edition of Carolina Journal:
A recent legislative debate over the types of ticketed entertainment that deserve to be exempted from the state’s sales tax inadvertently offered a free advertisement for the John Locke Foundation’s proposed Unlimited Savings Allowance, or USA, Consumption Tax.
The tax reform law consolidated three different types of taxation on entertainment tickets. Instead of charging a 3 percent gross-receipts tax on live entertainment, a 1 percent gross-receipts tax on movies, and no tax for admissions to cultural attractions, all of these types of “entertainment activity” will face state and local sales taxes starting Jan. 1.
With some exceptions. The exemption that consumed much of a 45-minute discussion during an Oct. 8 meeting of the Revenue Laws Study Committee was one protecting “state attractions” from the sales tax. Lawmakers haggled over the rules detailing which groups, programs, or locations ought to be dubbed state attractions.
Rep. Becky Carney, D-Mecklenburg, wondered why the sales tax exemption should not apply to groups like Charlotte-area community theaters, the Blue Ridge Orchestra, or the Asheville Choral Society, which “operate with volunteers and maybe a staff of one or two,” Carney told her colleagues.
A chief architect of state tax reform, Sen. Bob Rucho, R-Mecklenburg, didn’t buy the notion of hardships. “You think about it,” he said. “If one of the groups has a performance, and they collect $1,000, it’s not hard: $1,000 times 6.75 [percent], and that is what is submitted to the state.”
The discussion did not break down along partisan lines. Sen. Floyd McKissick, D-Durham, told colleagues that his “thoughts are actually somewhat similar to Sen. Rucho’s.”
“I think the more we can keep this kind of level playing field, the better in terms of simplification in application to all types of entities,” McKissick added.
The discussion made clear the inherent difficulty of leaving decisions about the sales tax to the political process. If you’re inclined to grant an exemption for any publicly owned attraction or community performing group, you’re still granting them a preference over private-sector movie theaters and music venues.
State legislators ought to be commended for recognizing that it makes more sense for North Carolina to tax consumption rather than income. Taxing income means taxing income-generating activity, one of the key drivers for economic growth and new jobs in the state.
The ideal consumption tax would work like this: If a person decides to spend a dollar, that dollar will be taxed — whether it’s for a theater ticket, bowling outing, jar of peanut butter, or new car. Exemptions should ensure that people are not taxed on the amount of income needed to cover basic necessities. Beyond that provision, there would be no exemptions for consumers spending their money with particular businesses, nonprofit groups, or cultural attractions. The tax kicks in only when the dollar is spent.
If that sounds much simpler and less open to political influence than the state’s current tax system, then you might want to give the USA Consumption Tax another look.