While major tax swap proposals have collapsed this year in Louisiana, Nebraska and Ohio, plans to pay for personal and corporate income tax cuts with a greater reliance on a regressive sales tax are still very much alive in North Carolina. This week, North Carolina’s Senate President and Senate Finance chairs released the latest version of a tax swap for the Tarheel State which they named the Tax Fairness Act. They are billing it as the largest tax cut in the state’s history.
Details of the plan are lacking despite the unveiling of a flashy website showcasing a tax calculator and video of the Senate President pontificating about the “plan.” Vaguely, we know the proponents intend to flatten the income tax, reduce taxes on businesses, eliminate the estate tax, and expand the sales tax base to most consumer services, food and prescription drugs.
It is clear that the result of the plan will be threefold: a significant tax hike on low- and middle-income families; a large tax cut for the state’s wealthiest households and profitable corporations; and a loss of more than $1 billion in revenue annually for vital public investments.
An editorial in Wednesday’s Raleigh News and Observer suggested the proposal should be renamed the “Let Working Families Pay More And The Rich Pay Less Act”. Indeed. Here is more from the editorial, which does an excellent job explaining the problems with the State Senate tax swap proposal:
“What’s being sold is North Carolina’s future. Berger, Rucho and Rabon promise it will be a future in which tax cuts for the wealthy and corporations will bring a flowering of new jobs. That promise, so often tested and always found wanting, will fail again. Tax cuts don’t create jobs, and they aren’t a primary reason why businesses come to this or any state. What fuels an economy and fosters business growth are a strong infrastructure, a clean environment and good schools. Those things would be undermined by tax cuts that would reduce public spending in a growing state with growing needs.
"To Berger, the new arrangement would be fair because the sales tax would be applied more broadly, services would be taxed equally and everyone would pay according to what they consume. “The more you spend, the more you pay,” he said. “The less you spend, the less you pay.” Berger tries to sweeten the bitter realities of the plan by touting the reduction in tax revenue as “the largest tax cut in state history.” But that claim doesn’t define the effect by income. Senate Democratic leader Martin Nesbitt did. “This plan actually amounts to the largest tax increase in North Carolina history on the middle class and working families,” he said....
Lowering income taxes on the rich and expanding the sales tax paid by all doesn’t make taxation fairer, no matter what you call it.”