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More Faulty Tax Cap Arguments from Big Government Promoters

The N&O published an oped by Richard Nordan, a Raleigh attorney and CPA, opposing the tax cap amendment slated to be on ballots next month. Big government apologists must be getting nervous about the amendment – as polling shows heavy support for lowering the constitutional income tax cap to 7% from its current 10%. Indeed, the latest Civitas poll showed 60% total in support versus only 22% total opposed.

The piece contributes essentially nothing new to the discussion. Instead, it makes a passing reference to a 1970s California cap on property tax increases and Colorado’s TABOR (which restricted the growth rate of spending). Neither of these examples are relatable to NC’s tax cap amendment.

After those meaningless passages, the article falls back on the well-worn mantra that such a cap will “tie the hands” of future legislatures in the event of a fiscal emergency.

First off, one thing that the tax cap opponents will never enter into the discussion is the concept of reducing government spending. No amount of spending will ever be enough.

Furthermore, as written here before, the “state’s hands will be tied” claim is absurd.

This tactic of creating the illusion that the state’s hands will somehow be tied during economic downturns is not unique to the N&R. But missing from their question is the fact that the amendment this fall would lower the state’s income tax cap from 10% to 7%, which would still allow a great amount of latitude. Income tax rates in North Carolina in 2019 will be 5.25% for personal and 2.5% for corporate.

In short, the corporate tax rate would still be allowed to nearly triple (180 percent increase) before reaching the 7% cap, while the personal tax rate could increase by a third before reaching the cap.

For quick reference with some back of the envelope estimates, with personal income tax revenues at $12.5 billion, a 33 percent tax hike would generate more than $4 billion in additional revenue (not taking dynamic effects into consideration). A tripling of the corporate tax would generate roughly $1.5 billion. I guess “limiting” legislators to just $5.5 billion in additional revenue (not even bringing in the option of raising sales taxes) is just not enough for big government advocates.

Finally, there is the article’s warning that with a lower income tax cap, there is a stronger likelihood that sales taxes will be increased to generate added revenue during emergencies. But how to explain the fact that legislators relied far and away most heavily on sales tax hikes during the last two downturns to generate revenue – even thought the income tax cap was at 10%?

It’s pretty disingenuous to pretend that a lower income tax rate cap will be to blame for sales tax hikes during emergencies, when legislators relied most heavily on sales tax hikes during emergencies at the current income tax rate cap.

 

 

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