Opinion: Daily Journal

Tax-Cutting Tax Hikes

RALEIGH – In Onslow County, where the Republican county commission has voted to place a quarter-cent sales-tax hike on the ballot for voter approval, advocates have adopted the strategy with the best record of success in other North Carolina counties: sell a tax hike by promising a tax cut.

If that sounds like a contradiction, then I chose the right words. It is a contradiction. But that doesn’t mean it lacks rhetorical effectiveness.

Back in 2007, the General Assembly responded to years of local lobbying for “revenue options” by authorizing counties to raise their sales tax by a quarter-cent or their real estate transfer taxes by four-tenths of a percent – but only if voters said yes in a public referendum.

Overwhelmingly, North Carolina voters have said no to these tax hikes. On 23 occasions, local politicians and left-wing activists have tried to impose the transfer tax. All failed. In 44 of 56 tries at the sales-tax hike, voters have rejected higher taxes, as well, often by large margins.

That does mean that in 12 cases, however, voters said yes to higher sales taxes. Given the economic situation and an evident turn in public sentiment in favor of fiscal conservatism, how can these pro-tax votes be explained? Circumstances differ from community to community, but there is a common denominator in the advocates’ strategy: they have learned to sound fiscally conservative while making government bigger and more expensive.

The key to understanding the strategy is to recognize why the most unpopular taxes are those levied on income and property. These taxes make the most-reliable voters in the electorate particularly furious for two reasons: 1) they get an annual bill showing how much income and property tax they pay, and 2) they know that some of their fellow residents do not.

These voters see the sales tax in a very different light. For one thing, because they pay it in dribs and drabs throughout the year, they usually have no idea how much sales tax they surrender to government. It doesn’t register the way a property-tax notice or 1040 does. Voters are also (wrongly) convinced that poor people and illegal aliens, who are less likely to own homes or reach income-tax thresholds, will only pay their “fair share” if the tax system is weighted more heavily towards sales.

Politicians are well aware of these public sentiments. That’s why they spent so many years (and public dollars) lobbying the General Assembly so strenuously for the authority to raise their sales taxes. Still, after lawmakers felt compelled to include a referendum requirement in the 2007 bill, county after county voted down not just the real-estate transfer tax – which really was just a dumb idea, politically and otherwise – but in most cases the sales tax hike, too.

Pro-tax county commissioners needed to find a more explicit message that would convince skeptical voters that a sales tax hike would be in their interest. Here’s what they came up with:

• Promise voters that if they support a sales-tax hike, the county will cut property taxes by a significant amount.

• Tell voters that the projects to be funded by the tax – schools, jails, or infrastructure – must be built, regardless of the fate of the referendum, either because of unstoppable growth or state mandates. That way, voters will see their choice as one between sales taxes and property taxes, not a choice between higher taxes and lower taxes.

As North Carolina counties began to adopt this messaging strategy, they increased their odds of passing sales-tax referenda. So far this year, two out of three county votes have resulted in sales-tax hikes. Several upcoming votes, mostly notably controversies ones in Onslow and Robeson counties, will feature the same strategy – commissioners promising to cut and/or not to increase property taxes if the voters say yes to taxing illegal aliens and the poor instead.

I still think most future referenda will fail. Tax-hike opponents correctly point out that whatever property-tax relief counties offer as a partial offset to a sales-tax hike will be temporary. Politicians almost always spend as much as they can, not as much as they promise. It doesn’t take much to convince voters to be skeptical of the promises of politicians.

Hood is president of the John Locke Foundation