Recently North Carolina residents began paying a new tax — one on repair services. What’s behind this new tax? NC State University economist Mike Walden explains.
“This is part of the state’s change in how they raise taxes. Over the last several years the state has moved away from taxing income, and they’ve made up for that by taxing purchases by consumers more.
“And so this is a good example this year: We do have this new tax on repairs … But we are also going to see the deduction — the standard deduction on income taxes go up, meaning that on average people pay less income tax. Then next year the income tax rates will also fall.
“Supporters of this move — that is, moving away from taxing income to spending — say that it will increase economic growth in this state. Detractors say that, well, that may happen, but sales taxes tend to be more regressive, meaning that lower income people pay a higher percentage of their income in sales taxes than higher income people.
“So we’ve had this running debate, and it will likely continue. I should say that overall if you look at the combination of the taxes over the past several years, the average tax payment, adjusted for inflation and as a percent of income, has gone down. So this changing mix has meant on average people paying less taxes.”