The tax shifting and budget slashing debate
Just over a month ago, Senate President Pro Tem Phil Berger announced with great fanfare the outline of a tax reform package that would lower state personal and corporate income tax rates and expand the state sales tax to include food and medicine as well as a host of services that are currently not taxed—everything from car repairs to haircuts.
Berger didn’t just issue a press release to trumpet the broad features of the plan that his key lieutenant Senator Bob Rucho had been working on for months, he released a slickly produced campaign style video featuring Berger himself in a factory talking about the proposal, claiming that the plan would boost the state’s economy.
A website touting the tax changes was also launched complete with a calculator created by the conservative Tax Foundation that allowed visitors to the site to enter various income levels and deductions to see how their state taxes would change.
No bill was introduced and the details were sketchy at best, but the calculator provided irrefutable evidence that the plan would raise taxes on most low and moderate income families and give huge windfalls to the wealthy.
The budget the Senate passed later in May made deep cuts to public schools and human services to come up with $770 million in the next two years to pay for the regressive plan.
Some right-wing think tanks were undaunted by the overwhelmingly negative reaction to the Senate tax scheme, criticizing the calculator even though they regularly cite the Tax Foundation in their propaganda and bringing hard-line anti-government zealot Grover Norquist to town to bolster the Senate reform efforts.
The extreme far-right goalpost of the great tax shift was set.
House leaders and Governor Pat McCrory tried to claim the mantle of moderation by issuing tepid responses to Berger’s bluster, with McCrory restating that he wanted any tax changes to be revenue neutral overall.
The folks at Raleigh’s leading right-wing think tank fell in line with the House leadership and McCrory, conceding the regressivity of the Senate plan and predicting the House would take a more thoughtful approach.
But last week the House unveiled and passed its version of a tax package that has more in common with the Senate plan that House leaders want to admit. It creates a flat personal income rate that is lower than the current top three rates and extends the sales tax to more services, though not nearly as many as the Senate originally proposed.
An analysis from the N.C. Budget & Tax Center finds that the House plan would also increase taxes on most and low and moderate income taxpayers while giving the wealthy a big tax cut. The House scheme would cost the state more than $500 million a year in revenue when fully implemented, nowhere near Gov. McCrory’s stated preference for revenue neutrality.
There was no slick video accompanying the House plan, but there was plenty of misinformation. Right-wing think tankers bristled at the charges that the proposal was regressive and cherry picked a few specific income scenarios to make their case, apparently willing to make fundamental changes in tax policy by a handful of anecdotes.
A more comprehensive analysis of the plan shows that the bulk of the tax cuts go to the wealthiest five percent of taxpayers and that most low and moderate income families would pay more.
The unfairness of the House plan is obvious even when using the misleading scenarios touted by House leaders and the think tanks supporting them. A wealthy family would not only receive a much larger tax cut in dollars than low-income families, the wealthy would receive a larger break as a percentage of their income too.
Just as it appeared that a consensus might be emerging around the House plan, Senate leaders unexpectedly unveiled yet another proposal this week that phases in the abolition of the personal and corporate income taxes while abandoning the broad expansion of the sales tax that Berger was pushing just a month ago.
The result is not only a regressive package, but one that would slash state revenue by more than $4 billion over five years, making more deep and damaging cuts to education and human services inevitable.
Senator Dan Clodfelter correctly called the latest Senate proposal a charade and that characterization applies to the entire tax reform debate this session.
It’s not a reform discussion at all. It is an ill-informed, often impulsive back and forth House and Senate political battle about cutting taxes, not reforming them, and shifting the responsibility for paying for public investments from the wealthy to middle class and low-income families.
House Speaker Thom Tillis said this week that the House and Senate would have to resolve the differences between the two tax packages before they could come to an agreement on a final state budget.
That’s exactly the wrong approach. The legislative session is approaching its waning days. It’s time to pass a responsible budget and leave the great tax debate for next year when maybe we can have an honest discussion about actual reform, not just the budget-slashing and regressive tax shifting that has dominated the debate for the last few months.
Plus it gives legislative leaders more time to produce new websites and videos.
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