The current budget crisis here in North Carolina may, among other things, inspire a significant change to the state's tax structure: creating a sales tax on services.
support Tuesday when a bipartisan group of business leaders backed a plan to
lower corporate and personal income taxes, while requiring many personal
services to be taxed for the first time.
In theory, its a sound idea if implemented properly. Lower the tax rates, broaden the base. The result is that economic decisions are distorted less by taxes as similar activities (i.e. purchasing a good or a service) are taxed similarly. Moreover, lower rates – of course – make entrepreneurial activity and work more profitable.
But unfortunately politicians will be in charge of any such implementation. So you know what that means: bring on the lobbyist-induced exemptions!
In return, services such as landscaping and auto mechanics would be subject
to the sales tax for the first time. But Hoyle said the proposal would likely
exempt certain services such as lawyers, accountants and barbers.
How completely unsurprising that lawyers would be exempt. If they are already ceding these exemptions in such an early phase of discussions, just wait until the lobbyists from all the service sectors are unleashed in Raleigh. The whole point of broadening the tax base is to tax all consumption – each exemption erodes the whole point of equal tax treatment.
It will be interesting to watch this process and see how far it goes this session. If the service tax does indeed get implemented, rest assured the final product will have more holes poked in it than Swiss cheese, as politicians simply can't resist their natural desire to choose winners and losers when it comes to the economy.