The Last Word on Tax Change

Published July 18, 2013

By Tom Campbell

By Tom Campbell, July 18, 2013.

Pundits, partisans and politicos have offered their views on the tax plan passed this week, ranging from praise to pleas. Politics is the art of compromise and this product is full of compromise. Can anyone offer the last word on what our lawmakers have done?

Regardless of the outcome you have to give our legislators credit for their willingness to discuss and make changes, the most significant made to our tax codes since the 1930’s.  If your definition of tax reform includes changing the structure, the ratio of revenues from various tax categories or even greatly simplifying the tax law this legislation probably doesn’t qualify as reform.

It will lower both personal and corporate income taxes, with the primary beneficiaries being high-income individuals and corporations. Income taxes account for about 55 percent of the state’s general fund revenues. With these tax cuts state government revenues will be reduced, so we can expect more budget reductions.

We are told the reduction or elimination of corporate income taxes will jump start job creation and investment in our state. The belief is that when companies pay less in taxes they have more to invest and will employ more people, but we aren’t sure there is factual justification for those claims. Balance sheets of publicly traded companies reveal swelling corporate treasuries yet these employers aren’t creating new jobs, due in part to both a lack of confidence in federal and state governments and new technology and mechanization that requires fewer employees. If this tax reduction/job creation theory is correct we should see proof quickly through a significant drop in our unemployment rate, still the 5th highest in the nation.

The legislature’s fiscal research staff estimates that a family of four earning $60,000 a year will see yearly tax reductions of $84, but since Census Bureau data for North Carolina reports average household income at slightly less than $44,000 this isn’t much help to most families, especially when you factor in the increased taxes on utilities, entertainment and other services they will pay. Even a family income of $100,000 only enjoys a $364 tax savings. The real savings come for those earning much more, a small percentage of our population. A family of four earning $250,000 per year has an income tax reduction of $2,400. Likely at this level those savings be invested or saved rather than spent and won’t generate many new jobs.

There were a few loopholes closed and exemptions eliminated but not nearly so many as had been hoped for, no doubt due to heavy lobbying from interest groups and the understanding lawmakers got what they could agree upon.

Nobody can give you the last word on this tax package because it will likely be several years before its impact is truly known. Let’s call it a start and hope it is the  beginning of more change to come.

The tax compromise passed quickly, with budget passage expected next week. There are many issues left to be resolved and we now enter into the scariest time in our legislative process, when lawmakers often tack amendments or special provisions into the budget or unrelated bills, taking many votes in a short time without proper debate or deliberation. We pray for wisdom and goodwill from our lawmakers.

July 18, 2013 at 10:43 am
Jeff Snavely says:

Just because "any change is a good change" has made it into the list of official GOP talking points does not make it true.

I still find it odd to see Republicans downplaying the changes now. As if telling us they spent the entire session working on something that turned out to be inconsequential is supposed to earn them praise.

July 18, 2013 at 6:37 pm
dj anderson says:

If this tax reduction/job creation theory is correct we should see proof quickly through a significant drop in our unemployment rate, still the 5th highest in the nation.- BLOG QUOTE

Define 'significant' please. I'd say 1% in a year, so spread that out over 12 months, or drop from 5th highest to 8th highest? Also, are we going to change the tools of measuring unemployment? Those just dropped from the extended benefits need to be counted, but if we change the method of counting we lose our means of measuring comparison.

Trouble is, this month's report showed unemployment increased in 87 of our 100 counties. All 14 Metro areas increased as well. So, first there needs to be a slowing of increase, which Obama always presented as progress, but I doubt the Republicans will get that spin. I won't give it.

Tom said, THE LAST WORD ON TAX REFORM. Well, I think Tom said it when he ended his blog with this: "We pray for wisdom and goodwill from our lawmakers." So, my last word is AMEN.

July 27, 2013 at 12:36 am
Norm Kelly says:

So, isn't is true that NC has one of the highest tax rates in the southeast? The state government has given tax breaks to companies for years if they promise to do certain things. State people have pressured local governments to give tax breaks to the same companies when they meet certain guidelines.

So, given specific/favored companies a tax break for a short period of time is a good idea, but giving every company a tax break is a bad idea? We KNOW that giving some favored large company a huge tax break generates jobs & construction? But we have doubts that giving every company in the state a tax break is a good thing? Seems that most times when tax rates are lowered everyone is usually willing to be more honest on their tax forms and claim more of their income cuz they know they get to keep more of it anyway.

There is a point of diminishing returns in every transaction, monetary or otherwise. Isn't it just possible that giving tax payers, individuals, families, companies, a tax break for the whole year could actually generate more income to the state coffers? The state has the stupid idea that giving a 1 weekend sales tax break is a good thing. They admit the sales tax rate is too high for the whole year, so if the lemmings are stupid enough to hold off on some major purchase(s), stand in huge long lines to check out, then they can get a 1 time break on sales taxes. But for the rest of the year, that temporary turned permanent sales tax increase bites you in the butt, every day, on most of the purchases a family has to make. So, is it possible that if the sales tax were also lowered, families would simply buy what they need/want when they need/want it rather than waiting for a time when some government agency says it's acceptable to buy said item? I say most NC tax payers are smart enough to know that lowering my income tax is a good thing, lowering my sales tax is a good thing, allowing ME to spend the money I earn the WAY I want to spend it, WHEN I want to spend it, on WHAT I want to spend it on is a good thing.

Let's hope the state government, as screwed up as it is, understands that I earn MY money, and I get FIRST claim to it and they continue to implement policies that keep the government in check rather than keeping ME in check.

We've try the tax & spend plan for long enough. Let's try the not tax & not spend plan for a short time to see if it works any better.

(note: if we could only get Washington out of our way, our state plans would probably start working, like lowering unemployment!)