Shaking up the tax mix

Big news was made in North Carolina recently when a plan to overhaul the state’s taxes was revealed.  N.C. State economist Mike Walden summarizes the plan and its possible impacts.

“Well, this is a plan. People should not say that this is going to happen, because we don’t know. It’s going to have to go through the legislative process, but if it did go through as presented, it would be a big change in how the state collects taxes.

Mainly the shift would be from taxing and collecting revenues on people and businesses’ income to taxing and collecting revenues on what people and businesses spend. In fact, the percent of state revenues derived from the sales tax would go from 25 percent to over 40 percent. And this would primarily be done by expanding the sales tax to include spending on many services.

The individual income tax rates would drop, and many other deductions would also go away. So, there are two big questions here.

One, what would this do to economic growth in the state? Supporters say it would increase it. Others say maybe not so much. The studies are actually all over the board on this. And then the second big issue is what we call equity. What would this do to taxes paid particularly by households of different income levels?

Some preliminary focus suggests that people at the lower income level would perhaps pay more. Those at the upper end of the income level would pay less. So, we’re going to hear this plan debated a lot over the coming weeks. People should pay attention.”