RALEIGH – North Carolina taxpayers are no doubt a bit vague as to the status of negotiations in Raleigh about a new budget for 2005-07. It’s been confusing. Various trial balloons have floated, deflated, or popped with violence force. A state-run lottery may or may not show up in the final bill. Gov. Mike Easley suddenly – but properly – is insisting on some modicum of spending restraint, requiring tens of millions of dollars be excised from the House’s budget plan to meet his proposed cap.
A simple way to sum up the machinations is: when it doubt, lawmakers are sticking it to taxpayers.
For a while, it appeared that there might be a deal underway to shave a few tenths of a percentage point off the state’s corporate income tax rate, which at 6.9 percent is higher than in most of our region (though not among the highest in the U.S.). After championing the idea for a time, however, the senate has apparently given up on the idea.
It also appeared for a while that North Carolina’s top income tax rate, scheduled to be at 8.25 percent this year and 7.75 percent next year, might not be extended at the higher rate (which is among the highest in the U.S). Doing nothing would have been best, letting the “temporary” tax hike disappear. Gov. Mike Easley and the Senate at least wanted to raise it to just 8 percent next year. But the House wanted the full 8.25 percent rate reimposed. It will get its wish.
In an attempt to save their 8 percent idea, senators signaled that they might go along with not extending the extra half-cent sales tax first imposed in 2001 and then again in 2003. Perhaps the sales-tax surcharge could be only four-tenths of a percent rather than five, they said. Wouldn’t that give lower-income folks a break on taxes that would somewhat offset the benefit top-income earners would derive from the 8-percent plan?
Yes, it would have. Just a few dollars per capita, really, but at least it would take taxes in the right direction. Still, House members were underwhelmed. And so the sales tax rate will continue to sting at 7 percent statewide (and 7.5 percent in Mecklenburg County).
See the pattern here? When in doubt, “compromise” by selecting the hardest-available hit on taxpayers. North Carolina is not the worst tax offender in the nation, I’ll admit. According to the latest data, our tax burden is about average for the nation. We’re high in income sales, around average in sales taxes, and well below average in property taxes.
But there are two points to remember about this. First, taxes are too high in lots of places. Second, many if not most economic decisions are not truly made on a nationwide scale. Most people are not deciding between North Carolina and North Dakota as a place to move, invest, or start a business. Many, however, get into situations where they contemplate moving, investing, or starting a business in North Carolina or a nearby state. If that’s the range of choice, then North Carolina still has a lot of selling points – I yield to no one in my Tar Heel patriotism – but taxes aren’t among them.
Wonder why? Then watch the legislature – and see whom they look at for when it’s crunch time.
Hood is president of the John Locke Foundation.