A Tax Reform Hero

by Martin Sullivan, Forbes Magazine, September 10, 2013.

In the gritty, grimy sausage factory of tax policymaking, it is rare to find a legislator who puts principle ahead of political gain. But if you were paying attention to the evolution of North Carolina’s tax reform over the first six months of 2013 you would have been very pleasantly surprised.

Sen. Bob Rucho, 65, a Republican from suburban Charlotte, is in his seventh two-year term in the North Carolina Senate. Co-chair of the finance committee charged with writing the state’s tax laws, Rucho by now should have understood how the game is played: You get as much favorable press attention as you can by repeating popular themes, and you marshal influence among the powerful by attending to the details that matter to special interests.

But when a major tax reform bill was making its way through his committee, Rucho eschewed what most senior legislators consider their due — that is, the opportunity to consolidate and enhance their power. Instead, Rucho shunned lobbyists and publicly attacked them for their effort to sabotage his plan to provide a low-rate, loophole-free tax code for North Carolina. For a plain-spoken but inspirational talk on tax reform, I highly recommend you watch Rucho’s May 30 presentation to his committee.

In the November 2010 election, Republicans made history when they seized control of North Carolina’s legislature for the first time in more than a century. Two years later they increased their majorities in the House and Senate, and Republican Pat McCrory cruised to victory with a 55-43% vote over incumbent Lt. Gov. Walter Dalton.

Early in 2012, many North Carolina Senate Republicans, including Senate Leader Phil Berger, were anxious to replace or at least significantly downsize North Carolina’s individual and corporate taxes. To make up the lost revenue, they sought a vast expansion of the state’s tax bases, particularly the loophole-ridden sales tax. But as the tax reform was about to receive formal consideration in the Senate, Berger and other Republicans capitulated to the political reality that House Republicans and McCrory had already acknowledged. Radical tax reform was a dog that would not hunt.

Rucho resigned his position as chair in protest and voted against the compromise plan. In his June 13 letter of resignation to Berger, Rucho wrote: “It is a huge disappointment that the Governor and the Speaker of the House did not provide the leadership or have the political backbone to fight the special-interest groups who favor loopholes over a fair tax system.” Berger refused to accept Rucho’s resignation, and Rucho remained chair. Nevertheless, for a month Rucho did not preside and sat with rank-and-file members at committee meetings.

On July 23, McCrory signed into law North Carolina’s new tax reform legislation, which lowered the top individual income tax rate from 7.75 % to 5.75 % and the corporate rate from 6.9 % to 5 %. But only a smattering of loophole-closing was included. Most of the controversial provisions opposed by lobbyists were dropped.

Bold tax reform will become a reality only when individuals like Rucho have majorities in legislatures. Right now, just seeing a single one is an extraordinary event.