The tax debate begins

Some state General Assembly members have proposed dramatically changing the kinds of taxes we have in North Carolina. N.C. State University economist Mike Walden summarizes the proposal and related issues.

“Well … if this went through it would be big. It would eliminate the income tax both for individuals and corporations. It would replace it with a broad consumption or spending tax.  That is to say, we would take the current sales tax and expand it to tax everything – everything that people buy.

“Advocates say that this would make North Carolina more attractive as a place for businesses. Businesses know they’d come here (and) wouldn’t pay any corporate taxes. Entrepreneurs know they would pay no individual income taxes.

“But there (are) several issues, as you might expect. One would be, would this be a very regressive tax?  Sales taxes, in general, mean that people with lower incomes – since they spend a greater percentage of their income – they’re going to pay a greater percentage of that income in sales taxes than high-income folks. That would be an issue that would need to be addressed.

“Secondly, if we expand the sales tax, for example, to services, obviously those businesses selling services probably wouldn’t like that. Would that put them at a competitive disadvantage vis-a-vis businesses selling services in other states?

“Also, if we’re not going to tax corporations, who’s that going to benefit? Who would get the savings from that?

“So, these are very, very big issues. And I think we’ll have a very, very big debate about this, which is just beginning.”