RALEIGH – Of all North Carolinians who live, work, or shop in big cities, those in Charlotte would be the biggest beneficiaries if the General Assembly proceeds with its proposed statewide repeal of the business-privilege license tax now levied by municipalities.
Now, before you follow the link to yesterday’s Charlotte Observer story about the privilege-tax debate and accuse me of plagiarizing the first paragraph, stop and read it more closely. The Observer states that Charlotte would be the “hardest hit” city if the tax is repealed, losing $17.5 million a year in revenue to spend as city officials choose. My point is the Charlotteans would be the biggest beneficiaries of repeal – keeping $17.5 million a year in revenue to save or spend as they choose.
Perspective matters.
Charlotte officials obviously see things from the point of view of the tax collector. They don’t want the legislature to eliminate the privilege-license tax as a source of local revenue. Sen. Dan Clodfelter, a Charlotte Democrat, argues in part that because its application varies widely across the state, the tax should go. The dispute, aired at a city council meeting, reportedly got pretty heated:
When Republican Mayor Pat McCrory asked for more details on the state’s tax plans, Clodfelter said he couldn’t reveal them. “Now wait a minute,” McCrory shot back. “You just tell us something in an argument and then you tell us we can’t get the details.”
That’s a fair point the mayor was making, but I think Clodfelter and his Senate colleagues are right about the underlying issue. Privilege-license taxes fail every test of good tax policy. They are unfair and inefficient. While businesses appear to “pay” them, the cost of the tax is in reality borne by a combination of business owners, consumers, and employees – with the latter group bearing the bulk of the true cost because it is the least mobile.
Any time a government collects a large amount of tax money from people who don’t know they’re paying the tax, because they never see a bill or send a check, spending goes up and accountability goes down. The policy yields poor fiscal results.
However, I don’t like Clodfelter’s proposed replacement for the license tax, an expanded retail sales tax from which local governments would derive additional tax revenue. In theory, a properly structured retail sales tax should apply a single rate to all goods and services sold at retail. In practice, though, the state legislature is never going to apply the sales tax to the retail sale of services delivered by powerful lobbies such as doctors and lawyers. Lawmakers are going to stick consumers of repair shops and the like. This isn’t reform. It’s just a tax hike.
Instead, I’d argue that the General Assembly should simply abolish privilege license taxes because they are bad public policy. As taxpayers pocket the savings of repealing privilege licenses, localities should offset their revenue loss by cutting low-priority spending. It’s no secret that Charlotte has indulged in plenty of this over the years. Second, in the unlikely event that core city services such as law enforcement needed additional revenue, local officials should raise transparent, broad-based levies such as the property tax.
You see, the value of a given tax is something else that, as Master Kenobi would say, “depends greatly on our own point of view.” To many politicians, the best tax is the one that maximizes revenue and minimizes political fallout. Jean Baptiste Colbert, Louis XIV’s tax collector, put it this way: “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.”
To me, however, the best tax is the one that maximizes public knowledge about government and thus minimizes wasteful spending. Taxpayers are better off when it’s hard to reach their tail feathers and easy to hear their hissing.
Hood is president of the John Locke Foundation