North Carolina tax reform options
January 28, 2013 2 Comments
Scott Drenkard and Joseph Henchman of the Tax Foundation outline four tax reform options for North Carolina that are based on a report financed by the Carolina Business Coalition. The link noted in the News and Observer op-ed doesn’t make it to the full report; I will add it and read it when I can find it (update: here is study).
I like the way that the op-ed lays out four options that they claim each raise the same amount of revenue as the current tax code (with the proviso that I haven’t read the full report; I am taking what they say at face value for the time being). As I have written about federal tax reform, the most important decision is how much revenue you intend to collect; then you legitimately move to the issues of fairness, impact on growth, and the like. There is no need touting an idea that cannot raise the revenue being targeted.
The op-ed highlights four options. Again, they say that each will raise the same amount of revenue as the current tax code and they focus on the growth side impacts; issues of distribution and fairness are also important. I would also note that progressivity/notions of fairness are also influenced on the spending side, so the state’s decision on the Medicaid expansion will become very important in how any tax reform is viewed.
• “Option A” makes North Carolina the most pro-growth tax system in the country, simplifying the personal income tax at 6 percent, lowering the statewide sales tax to 3.5 percent while expanding its base to services, and repealing the corporate income and franchise taxes.
• “Option B” keeps all the major taxes, but simplified and at low rates: a 5 percent income tax, 5 percent sales tax and 5 percent corporate tax. A similar positive reform was adopted in Utah, contributing to its economic success.
• “Option C” would eliminate taxes on individual and corporate income and broaden the sales tax base to services to make up the revenue. The total state sales tax rate would have to be raised to 8.75 percent to fully fund current levels of state spending, but the benefit of this option is that North Carolina would be one of the few states with no taxes on investment or job creation.
• “Option D” eliminates taxes on retail sales and corporate income, paying for these reductions with a single, simple tax on individual income at a flat 10 percent rate.