This Reuters story being run in outlets across the country features North Carolina’s efforts at tax reform.
CHAPEL HILL, North Carolina (Reuters) – Hopes for overhauling the federal tax system are fading in Washington, but in some state capitals, tax reform experiments – some far-reaching – are fast taking shape.
Across the South and Midwest, Republicans have consolidated control of state legislatures and governorships, giving them the power to test long-debated tax ideas.
Louisiana Republican Governor Bobby Jindal, for instance, called on Thursday for ending the state’s income tax and corporate taxes, with sales taxes compensating for lost revenue. A similar plan is being pushed by Republicans in North Carolina. Kansas, which cut its income tax significantly last year, may trim further. Oklahoma, which tried to cut income taxes last year, is expected to try again.
“We have no choice but to make change,” said Bob Rucho, a Republican state senator in solidly Republican North Carolina, who is leading a push in that state for major tax changes.
Rucho and other like-minded lawmakers have a plan to do away with all state individual and corporate income taxes. The plan would replace lost revenue with a new business license fee and a higher sales tax on goods and services not now taxed by the state, such as legal, accounting and spa services, and food.
In his inaugural address on Saturday, Republican North Carolina Governor Pat McCrory promised to work with business “as partners” to eliminate taxes and regulation that stifle growth.
Rucho’s plan would remake the North Carolina budget, which now derives 65 percent of its $18.5 billion in total tax revenues from individual income and corporate taxes.
To make up for that much lost revenue, the state sales tax rate would have to rise to 6.53 percent from 4.75 percent, according to a supportive study done by a consulting firm run by Arthur Laffer, a former adviser to Republican President Ronald Reagan and one of the fathers of “trickle-down” economics.
As an aside, the author’s use of the term “trickle-down” economics is unfortunate. As Thomas Sowell recently pointed out in this essay, no advocate of supply-side economics has advanced the theory in terms of “trickle-down” effects. Rather, usage of that term is “a classic example of arguing against a caricature instead of confronting the argument actually made.”
For more on a proposal to eliminate income taxes in NC, and to read the study mentioned in the Reuters article, check out noincometaxnc.org