A tax that's too taxing

Editorial by Wilmington Star-News, June 19, 2015.

Republican leaders in the state Senate are betting on sales-tax revenues to keep North Carolina's government afloat for the next few years. It's a bad bet for most ordinary Tar Heels.

Senators gutted a House economic development bill -- one passed with bipartisan support and favored by Gov. Pat McCrory -- and essentially substituted one of their own.

Their version, adopted Thursday, would cut some corporate taxes and reduce the personal income tax rate from 5.75 percent to 5.5 percent.

To make up the difference in state revenue, senators want to lean harder on the sales tax. The Senate plan would expand the sales tax to cover veterinary services, including pet grooming, the installation of some appliances and the repair and maintenance of cars and other personal property. Hospitals, which currently have a sales tax exemption, would lose it.

The Senate plan would also tinker with rules on how sales-tax revenues are distributed. Counties like New Hanover or Brunswick, which gather a lot of tax revenue from tourists and out-of-towners, would get to keep less; more would go to small counties with less business. That's nice for the small counties -- but New Hanover and Brunswick might have to raise local property taxes to make up the difference.

Areas that attract out-of-town shoppers also have higher costs to support that activity, including infrastructure and services such as public safety.

Meanwhile, taxpayers would see bigger bills when they take Fido or Mr. Giggles in for their rabies shots, when they get their oil changed and when they have to stay at the hospital.

For folks who say they want to get Big Government off people's backs, this is a peculiar move.

Economics 101 teaches us that sales taxes are regressive; they hit poor and middle-class taxpayers harder than better-off ones. Instead of wisely saving and investing in things like stocks, bonds, money-market accounts or campaign contributions, these poorer folks tend to squander their money buying things like food and children's clothes.

According to the nonprofit Institute on Taxation and Economic Policy, folks making $40,000 or less per year already pay between 5 and 6 percent of their income on sales taxes. Those in the top 5 percent income brackets pay 1.5 percent or less -- often, much less.

The Senate's bill, as it stands, will make this disparity worse.

North Carolina is already among the states that relies most heavily on sales tax for revenues -- and remember, in this state, the sales tax covers groceries.

Now there'll be some fancy footwork as Senate and House negotiators have to come up with a compromise budget version. House members should prepare to dig in and stand their ground on the tax issue.

Putting more tax burden on working mothers, low-wage workers and senior citizens on fixed incomes? That's just not fair.

http://www.starnewsonline.com/article/20150619/ARTICLES/150619574/1108/editorial?template=printart