We’re not in the habit of agreeing with Art Pope, the multimillionaire retail chain scion, sugar daddy extraordinaire of right-wing political causes, and currently deputy budget director in Gov. Pat McCrory’s administration. But we have to say, when it comes to assessing the practicality and fairness of legislative Republicans’ plan for overhauling the state’s tax system, the man knows what he’s talking about.
Late last month, Pope — speaking for himself, not his boss — expressed skepticism about a proposal by Republican legislative leaders to ditch North Carolina’s corporate and personnel income taxes and replace them with an expanded sales tax. Pope called it a “bad idea.”
We think so too.
The proposal, according to state Senate President Pro Tempore Phil Berger, R-Rockingham, is to scrap as much as possible the state’s 6.9 percent corporate income tax rate and personal income tax rates (the current highest rate, for high-wage earners, is 7.75 percent) and replace them with a sales tax rate that would rise to no more than 8 percent. The proposal also reinstates a state sales tax on food that was abolished 15 years ago, and taxes a whole panoply of currently untaxed services — everything from legal, physician and financial services to haircuts, auto repair and lawn care. The proposal also calls for both a business license fee and a fee on real estate transactions.
Although the real estate industry and others affected by the proposal are already criticizing it, Berger and other legislative Republicans, including new District 1 state Sen. Bill Cook, R-Beaufort, have hailed the idea. They believe it will improve the state’s economic climate, making North Carolina more competitive with neighboring states, some of which also don’t tax income, for business growth and jobs. They also believe that by taxing consumption rather than income, the state will help workers by giving them the choice of saving more of the money they earn.
The conservative-leaning Civitas Institute also has hailed the idea, releasing a study that claims shifting the tax burden from income to consumption will increase average annual personal income in North Carolina between .38 percent and .66 percent.
Pope, however, isn’t so bullish on the idea. While acknowledging the state’s current tax system has a lot of “holes and problems,” Pope said during a recent public policy forum that revamping the tax system now would be “very difficult to do and have a lot of impracticalities.”
Democratic lawmakers, who until 2010 held legislative power in Raleigh, know exactly what Pope is talking about. They studied overhauling the state’s tax system and expanding the sales tax to cover a range of untaxed services as a way to raise more revenue but ultimately gave up on the idea.
Pope, who has no chance of ever being labeled a bleeding-heart liberal, also has concerns about the fairness of the tax overhaul proposal. Pope acknowledges that a higher sales tax is “absolutely” regressive, meaning it will hit lower-income taxpayers hardest. An analysis by the N.C. Budget and Tax Center, a left-leaning group, in fact shows the GOP tax overhaul plan increases taxes by $500 on a family earning less than $24,000 annually while cutting taxes by $41,000 on those making more than $1 million a year.
While one can quibble with the Budget and Tax Center’s numbers, there’s no quibbling about the tax shifting effect they say the plan will have: Supplanting income taxes with a higher sales tax will reduce the overall tax burden on those at the top of the income scale and increase it for those at the bottom. That’s because those with lower incomes spend a larger share of what they make on goods and services — most of which now would be taxable under Republicans’ plan — than high earners do.
Pope’s critics on the left are suspicious about his motives. Some have suggested he is criticizing the most radical GOP plan — complete elimination of corporate and personal income taxes and replacement of them with a higher, broader sales tax — so that when a compromise plan is offered that only reduces corporate and personal income tax rates, it won’t seem so bad in comparison.
But there could be another commonsense reason for Pope’s criticism. After spending millions in recent years to put Republicans in complete charge in Raleigh, it could be that Pope doesn’t want to see the GOP throw their advantage — as well as his money — away on a tax overhaul plan that’s sure to upset more people than it pleases.