RALEIGH – Well, North Carolina voters have spoken in the great local-tax battle of 2007. With some exceptions, the prevailing response was something akin to, “You’ve got to be kidding!”
There were 33 county tax issues on Tuesday’s ballots. Eleven counties had public votes on whether to levy a new local transfer tax on real-estate sales. Eleven counties had votes on whether to increase the local sales tax by a quarter-penny. Five counties – Graham, Rutherford, Davie, Harnett, and Johnston – allowed voters to weigh in on both tax options. Finally, Mecklenburg voters were given the option of repealing a half-cent local sales tax devoted to transit projects.
On the whole, North Carolina fiscal conservatives made a strong showing on Election Day, winning 26 of these 33 votes (as of late-night Tuesday*). Many will consider it remarkable that the transfer tax failed in all 16 county votes, by whopping margins. I’m not surprised. Because of the financial and human resources invested by homebuilders, Realtors, and two grassroots organizations, Americans for Prosperity and FreedomWorks, the county anti-tax campaigns were able to communicate their case effectively and turn out their voters. But the reason the investment paid off is that there was, indeed, a strong case against the tax on the merits. Voters didn’t like the idea of paying yet another tax on their homes, and didn’t buy the argument that it would make “developers” or “newcomers” pay for other people’s public services.
I’m actually more surprised that most of the sales-tax referenda failed, as well. As taxes go, levies on sales are the least unpopular. With income and property taxes, you get a bill. That often gets you mad. Sales taxes come in dribs and drabs, and don’t elicit quite as much resentment. Furthermore, many are persuaded by the notion that sales taxes make “them” pay – meaning illegal immigrants, criminals, the poor, etc. – while property taxes only affect property owners. This is a false notion, but a prevalent one.
Not prevalent enough, it turns out. Of the 16 sales-tax referenda, voters said no in 10 counties. Two of the larger counties that have pushed for years for sales-tax authority, Catawba in the west and Pitt in the east, did indeed approve a sales-tax hike. But the most-populous county with a tax-hike referendum, Cumberland, which has often led the lobbying charge in Raleigh for more taxing authority, voted down the sales tax by a relatively close 52-48 margin. A key factor there may have been opposition to the sales tax from African-American activists, properly concerned that it would make the local tax burden more regressive.
The biggest defeat for fiscal conservatives was in the biggest county of all in the mix, Mecklenburg. The vote totals weren’t even close. There are a couple of important distinguishing characteristics in the Mecklenburg case, however, that must be kept in mind when interpreting the result.
One is that unlike all the other votes, the Mecklenburg proposal wasn’t about heading off a tax increase. It was about repealing an existing tax dedicated to a particular program. This made it easier for local politicians and spending lobbies to sell the idea that voters weren’t really being given a choice between a higher and lower tax burden. If the sales tax is repealed, voters were told, property taxes will go up for Mecklenburg residents by an equal or even larger amount (tax supporters emphasized that 30 percent of sales-tax revenue came from shoppers residing elsewhere).
The second factor is, again, a resource disparity. The pro-tax campaign in Mecklenburg raised vastly more money than the repeal campaign did, much of it from firms doing business with the transit system and downtown business interests who stand to gain from taxpayer subsidy of their employees’ commutes and their own transit-oriented development projects. These resources allowed the pro-tax side to change the subject, to downplay the problematic issue of rail while playing up the risk of higher property taxes and reductions in bus service to vulnerable populations (neither of which was justified by the facts).
North Carolina’s 2007 local-tax battle may be over, with conservatives scoring a convincing win. But the larger debate about our fiscal policies and priorities is far from over. Expect more county commissions to schedule referenda in 2008, in every case opting for the sales tax. They know it will be difficult to convince voters to say yes. That’s still better odds than they’ll find with the transfer tax, now revealed to be a sure loser.
Hood is president of the John Locke Foundation.
*Wednesday Afternoon Update: It appears that early returns suggesting Columbus County had approved the sales-tax hike were in error. The vote totals were corrected early Wednesday to show a narrow loss for the sales-tax referendum there. That means that fiscal conservatives won 27 of 33 contests.