Institute on Taxation and Economic Policy

State Legislature to Consider Raising Taxes on 80% of North Carolinians – Updated

editor’s note:  We would like to extend our thanks to Alexandra Forter Sirota of the NC Justice Center, who took the time not only to read our re-posted article, but to let us know that the graph used in the report had been updated by the NC Budget and Tax Center.  Aside from just adding both to my daily RSS feeds, this updated article includes their updated graph.

 

North Carolina State Senate leader Phil Berger (R-Eden) (R-ALEC) is indicating that the preferred “Tax Overhaul” which will be put before the legislature by the Republican majority and designed by Art Pope’s (R-ALEC 1995) Civitas Institute will eliminate most corporate taxes, do away with personal income taxes, and raise sales/consumption taxes to as much as 8.5%. According to a study by The North Carolina Justice Center released last week, one of the effects of this change would be to raise the taxes of a family of four earning $24,000.00 a year (the Federal poverty line) by $500.00 and give those making over $1 million are year a $41,000.00 tax cut. The plan eliminates the personal income, corporate income and franchise taxes, which, combined, generate $12 billion in revenue for North Carolina schools, infrastructure and other public priorities. The revenue loss would be replaced via a higher sales tax that would cover more goods and services, a business license fee and a real estate transaction fee.

For North Carolina’s top 20% of North Carolina’s wage earners the change in the tax code would be a major financial boom while the remaining 80% comprised of the working class and the working poor would bear the brunt of the new burden.
Civitas-Laffer Plan Increases Taxes for Middle- and Low-Income Taxpayers

The plan, called the Civitas/Laffer Plan after billionaire Art Pope’s Civitas Institute and an economist named Arthur Laffer (ALEC “Scholar”), who was on Ronald Reagan’s Economic Advisory Board where he championed the (proven wrong) philosophy of Supply Side Economics. The Civitas/Laffer Plan, if implemented, would do the following:

  • Eliminate the personal income tax, which generated $10.3 billion during fiscal year 2011-12.
  • Eliminate the corporate income tax, which generated $1.1 billion.
  • Eliminate the business franchise tax, which applies to businesses that are incorporated in North Carolina and generated $650 million.
  • Raise the state sales tax to 6.53 % from 4.75 % and expand it to include currently exempt goods, as well as services that are currently not taxed. The plan purports that the sales tax would generate an additional $7.6 billion.
  • Create a real estate transaction fee that would apply a 1 % tax on the total value of commercial and real estate transactions when they are transferred, which would raise an estimated $390 million according to the plan.
  • Implement a business license fee that would apply to businesses based on their earnings, assets and losses, with a minimum fee of $500, which would raise an estimated $4 billion.

Opponents of the plan and organizations such as the NC Justice Center contend that the negative effects of implementing the Civitas/Laffer plan would be:

  • Will not raise enough revenue to meet North Carolina’s current and future needs.
  • It is most generous to the wealthiest North Carolinians while raising taxes on
  • middle-income households.
  • Its structure threatens the state’s ability to respond to changing economic conditions.

Thom Tillis with gavelThe plan comes as no surprise to those who have followed the recent career of General assembly Speaker Thom Tillis (R-ALEC). In 2011 Tillis was named ALEC’s (American Legislative Executive Council) Legislator of the Year. Also in 2011 ALEC released their “Tax Commandments” which included the “commandment” to ALEC legislators to:

First, thou shalt keep taxes low.
Second, thou shalt reduce taxes on income and wealth.
Third, thou shalt keep marginal tax rates low and relatively uniform.

ALEC has since scrubbed these “commandments” from the internet, but they no doubt had an effect on ALEC legislators like Tillis. One of ALEC’s (and many Conservatives) contentions is that lowering corporate and income taxes will spur economic growth. According to the study done by the NC Justice Center:

There is no evidence of a direct relationship between top tax rates and economic or job growth. According to a 2012 study by the Congressional Research Service. Moreover, states that Laffer himself has termed “high income tax states” turn out to have economic conditions comparable to, if not better than, states that do not have a personal income tax, according to the Institute on Taxation and Economic Policy.

In fact, states with low income tax rates actually have lower employment growth and lower median household income than Laffer’s designated high-tax states according to a recent study by Good Jobs First and the Iowa Policy Project.

Furthermore, the industry composition in a state has a greater impact on a state’s economic performance. Similarly, an educated workforce, the presence of research centers like major universities and other knowledge factors boost per capita income growth. Accordingly, states will likely suffer in the long run because they lack the resources needed to invest in education and other building blocks of economic growth.

Wednesday morning at an event in Chapel Hill, state Budget Director and Civitas financier Art Pope told reporters that he doesn’t think that eliminating personal and corporate taxes would not be a “good idea”. This after Pope’s Civitas Institute has been promoting an article titled, “Why All U.S. States Should Eliminate The Income Tax.”

Also Wednesday Thom Tillis muddied the water further mixing the messages when according to News 14 he told small businessmen in Charlotte:

“If we can get to a point to where we no longer have a corporate and personal income tax that would be great,” he said. “The devil’s in the details in how you get there.”

While it is not clear exactly what any final legislation will look like, it appears that the State Legislature is heading in the direction of raising taxes on 80% of North Carolina’s population. Governor Pat McCrory is yet to make a statement to indicate his Administration’s position on the tax raise. Art Pope is an art popeAdministration official, however, and it is possible that his statements reflect the position of the McCrory Administration in spite of Pope’s financial sponsorship of the Civitas Institute.

 

 Art Pope (photo)

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This article was posted at the Camel City Dispatch, at http://www.camelcitydispatch.com/state-legislature-to-consider-raising-taxes-on-80-of-north-carolinians/    It was the best written explanation I found of the Civitas-Laffer plan using the data from the Institute on Taxation and Economic Policy.

To read the entire Budget and Tax Center report on the Civitas-Laffer Tax Plan, please click here

 

Don’t Burden Middle,-Low-Income in ALEC Tax Plan–NC to Get Hit Again?

It wasn’t mere coincidence that a day before N.C. Senate leader Republican Phil Berger (R-ALEC)  unveiled a plan to overhaul the state’s tax system that Nebraska’s GOP Gov. Dave Heineman was giving his State of the State address focusing on the same thing.

And it’s not just happenstance that the centerpiece of both plans is eliminating corporate and personal income taxes.

North Carolina and Nebraska are joining a slew of states with Republican-controlled legislatures or GOP governors – we’ve got both in the Tar Heel State – that are grabbing the opportunity to push the idea of tax reform through redistributing the tax burden from those with higher incomes to those with middle and lower incomes. The idea of replacing taxes based on income and from corporations with increased sales taxes that disproportionately affect those with lower incomes has been championed by the American Legislative Exchange Council.
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