RALEIGH – Last week, majorities in the NC House and Senate approved a new state budget for FY 2002-03 that raised state taxes by $157 million and took $333.4 million in tax reimbursements away from local governments. The latter was guaranteed to result in local tax increases of some kind. The only question, akin to allowing a convict to decide between the electric chair and the hangman’s noose, was whether these new taxes would come in the form of higher property taxes or higher sales taxes.
It looks like the latter. Tonight, a bill designed to let localities hike the sales tax rate to 7 percent in most counties (7.5 percent in Mecklenburg) passed by a 60-55 margin in the House after a similar bill failed by a 57-60 margin back in July. For those of you keeping scoring at home, that means that North Carolina lawmakers will have over the past two fiscal years voted for budget and revenue bills raising our taxes by about $1 billion a year.
Some 200 local officials were reportedly looking on in the gallery, cheering as sales-tax supporters made their case. Unfortunately, there was no such representation in Raleigh for the state’s beleaguered taxpayers, who can hardly be blamed if they feel little joy about the outcome. Either way, they were going to be out hundreds of millions of dollars. Now, with the passage of the sales tax – and don’t be fooled, the state’s “temporary” half-cent sales tax is unlikely to go away next July as scheduled, so we are stuck with a 7 percent rate indefinitely – taxpayers will shell out more of their hard-earned money, and will lose the federal tax deduction that would have, at least, accompanied increases in property taxes.
The phoniest argument of the night was that the sales tax is “fairer” because everyone pays it, while property taxes let renters, tourists, and transients get away without paying taxes. This is an embarrassing argument for otherwise-intelligent people to make. Surely they know that both commercial and residential renters pay property taxes, indirectly but no less painfully, as landlords pass along the tax in the form of higher rents. Similarly, shoppers pay a share of the property taxes collected in malls, shopping centers, and stores. Now, with a higher sales tax rate than most of our neighboring states impose (starting to sound familiar, isn’t it?), these renters and shoppers will simply pay more and get less.
Why should local officials care which form of economic execution, property or sales tax hikes, the legislature imposes on their citizens? Because sales taxes don’t make people as angry as property taxes do. That is a main difference between the two, and is precisely why advocates of fiscal restraint should eschew the sales tax. It weakens public accountability, since taxpayers get no bill at the end of the year (as they do for income and property taxes). City and county leaders know that shifting the tax burden towards sales will hide its extent. That’s why they want to do it.
Oh, and one more thing. The new 7 percent sales tax starts December 1, just in time for holiday shopping. I am sure it will help us all get into the Christmas spirit – of giving, and giving, and giving. . .