State senators introduced their latest tax-cut extravaganza last week by promising “everybody’s going to benefit.”
“I’m tired of hearing that we only do this for the rich,” Sen. Jerry Tillman (R-Randolph) said.
North Carolina taxpayers have heard the promise before. Some of them spoke to a House committee earlier in the week, complaining that their state tax bills have gone way up because deductions for medical expenses were eliminated by the 2013 “tax reform.”
The Committee on Aging unanimously approved a bill that would restore the deduction for senior citizens. It would cost an estimated $38 million in revenue next year, which is the amount of extra taxes older residents are paying now. Many other people whose incomes are modest have been unimpressed by their “tax cuts,” which were heavily weighted in favor of the wealthy.
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Maybe the further cuts proposed last week, although with greater personal exemptions, would add up to real breaks — but there’s going to be a catch.
The $1 billion cost to the state could be offset by broadening the sales-tax base, senators said.
If income-tax cuts leave more money in people’s pockets, Tillman explained, they’ll go out and spend it. “That will create economic movement, and that in itself will recoup, over a short term, the $1 billion that everyone thinks we’re losing.”
If people pay less in income taxes but an equal amount more in sales taxes, are they better off? It depends on how the tax burden is redistributed.
Even the conservative John Locke Foundation thinks the plan is flawed. It worried about depleting state revenues when its “rainy day fund” is already too low.
Senators also proposed further cutting the corporate income-tax rate, an idea that Gov. Pat McCrory said would “break the bank.”
The governor appears to be an onlooker when it comes to the Senate’s tax initiatives. These sharp cuts weren’t included in his proposed budget.
He also criticized the Senate’s plan to shift local sales-tax revenues from so-called wealthy counties to poor ones. That seems to be the Senate’s only plan for meeting needs in small towns and rural areas — take money from the cities as the state cuts its own tax revenues.
Tillman said the goal of the Senate plan, which it calls the “Job Creation and Tax Relief Plan of 2015,” is to drive tax rates lower than South Carolina’s. If that happens, senators believe, economic develop will flow to North Carolina instead of to the Palmetto State.
Yet, South Carolina is aggressive in using incentives to recruit businesses, which the Senate resists. It also isn’t conducting a war against its own cities. Raleigh, Charlotte and Durham lead North Carolina in job creation, but not because they starve public services through tax cuts. A reasonable level of taxation is needed to provide infrastructure that attracts and supports business growth. If lack of revenue itself were the magic formula, North Carolina’s rural counties would be thriving instead of losing population and hope.