Your Taxes Just Went Up, Courtesy of Governor Pat McCrory
On March first Governor McCrory's new sales tax expansion took effect, taxing dozens of services for the first time. This regressive sales tax expansion will disproportionately hit working families, while those at the top get huge tax breaks. Not the kind of change NC needs.
As with so many of the tax changes enacted and promoted by conservatives in recent years, the new expansion of the sales tax is especially pernicious and misleading in its present form because there are actually some kernels of truth in the proponents’ arguments that tend to confuse the issue.
It is correct, for example, that taxing services can be a good idea. The proponents of expanding the sales tax to services are right in that it generally makes sense to move in such a direction. Not only does this broaden the base of the sales tax in our increasingly service-based economy, it can, if done properly, enhance fairness and progressivity by taxing things that wealthy people tend to buy more of.
As tax fairness advocates have argued for years, however, the best way to do this is in a “revenue neutral” manner. This means the state should expand the “base” of the sales tax to include lots of previously untaxed services but, at the same time, lower the rate at which all sales are taxed. This would produce the twin benefits of making the sales tax fairer and less susceptible to swings in the economy.
The idea is to keep the sales tax as a key part of the state revenue system, but to avoid making it an overwhelmingly dominant component as it is in states like Florida and Tennessee. Unfortunately, the Florida/Tennessee model appears to be precisely what the state’s conservative leaders have in mind.
As noted above, under the sales tax expansion taking effect today, officials have opted for a more regressive path by keeping the rate the same (currently a minimum of 6.75%) and expanding it to several services that tend to be paid by lower and middle income taxpayers. The fact that lawmakers have also jacked up all sorts of basic state government fees only exacerbates the problem.
The bottom line: North Carolina needs more fairly generated revenue
None of this is to imply in any way that North Carolina doesn’t desperately need more revenue. As countless stories documenting the shortfalls in public and higher education, the courts, prisons, environmental protection and other areas have made clear in recent years, numerous public structures and services are suffering from chronic underinvestment. In such an environment, the new revenues raised through the expanded sales tax are certainly welcome. That said, North Carolinians should be under no illusion that the changes represent a positive development in state fiscal policy. They are, in fact, just the latest in a long series of destructive and/or poorly implemented fiscal policy shifts that have rendered North Carolina a badly diminished and increasingly divided state.