A team of experts from the UNC System, including professors Mike Walden and Roby Sawyers of N.C. State, is working to analyze and predict the effects of a tax reform plan which is currently under consideration in the North Carolina Senate.
Republican lawmakers have been trying to change the state tax code for years. This year, with Republicans in control of the House, the Senate and the governor’s office, Senate President Pro Tempore Phil Berger has proposed a plan known as the The Tax Fairness Act, which would cut the income tax from 7.75 percent to 4.5 percent. That would mean $1 billion dollars in cuts to state revenues over a period of three years.
Berger described this cut to the Associated Press as the “largest tax cut in state history.”
This plan comes amidst the Senate’s budget proposal to cut $48 million from the UNC system next year.
According to the Senate plan, much of the money lost in income tax would be made up by expanding the scope of the sales tax and increasing the number of services currently taxed by law.
“The big picture of tax reform being considered in the General Assembly is to move the state’s tax system away from taxing income – both corporate and individual – to taxing spending,” Walden said.
Some services that may be taxed under this plan include haircuts and car repairs.
Many experts agree that the state tax code is in need of reform. According to the Tax Foundation, a nonpartisan tax research group, North Carolina ranks 44th in the nation in “business tax climate,” a figure determined by taxes which affect businesses, including sales tax, property tax, corporate tax and individual income tax.
Nevertheless, shifting the burden of generating state tax revenue to sales tax and away from income tax is controversial.
“There are many issues involved with the proposal, including the impact on economic growth in the state, how taxes would change for households with different income levels, how particular sectors of the economy might be impacted if their services are now taxed or if their purchases cannot be included as tax deductions, and how the proposals might impact revenue availability for the state,” Walden said. “These are all complicated subjects on which a variety of different conclusions can be reached, so the debate will be important to follow.”
Walden and Sawyers both said they are unable to discuss the specifics of their research, but Sawyers said the results would be reported in the very near future.
According to the tax calculator on the website for the Tax Fairness Act (nctaxcut.com), a site run by the state Republican Party, a taxpayer making $30,000 per year with a dependent spouse and one child would pay almost $1,000 more in taxes each year under the plan. A taxpayer making $100,000 per year with a dependent spouse and one child would receive a tax cut of nearly $3,200 per year.
Statistics like these have caused some Democrats in the Senate to speak out against the plan.
“Those couples who have more than $100,000 taxable [income] really ought to pay more than a family making $30,000,” Democratic representative Paul Luebke told The News & Observer. “Flattening the income tax is not fair to the majority of North Carolinians.”
According to Public Policy Polling, a Raleigh-based polling firm, the tax proposals are unpopular among voters in North Carolina. Recent polls have indicated that 14 percent of voters support the Senate plan and 44 percent opposed it. Moreover, when key details such as increases in taxes on groceries are mentioned to the voters, 68 percent oppose it and only 13 percent support it.
