A cadre of North Carolina business leaders appealed Tuesday for new momentum on state tax reform, urging lawmakers to cut overall tax rates this year while simultaneously placing levies more broadly across services and industries.
A bipartisan committee formed by the Institute for Emerging Issues at North Carolina State University said the current tax system is outdated and needs to be retooled to reflect an economy that has shifted toward services and technology and away from traditional manufacturing.
The panel didn’t propose specific new tax rates but said they should be adjusted downward and shouldn’t raise overall revenues immediately. The group said the state would benefit overall from a system considered more equitable while tapping into more revenues in the long-term.
“The system that we have now is not fair; it’s not realistic,” former four-term Gov. Jim Hunt, the institute’s chairman, said at a news conference. “Wise leaders do what’s right for and for the future.”
Significant tax changes – similar to what was accomplished during the Great Depression of the 1930s – would lower top marginal tax rates that right now harm our competitiveness with surrounding states, leaders said.
“This is the right thing to do – good times or bad times,” said former Charlotte Mayor Richard Vinroot, a Republican and committee co-chairman. “What we’re talking about doing is replacing a 19th- and 20th-century process with one that’s better for the 21st century.”
Senate Democrats are considering whether to lower tax rates on sales and income taxes while taxing some services for the first time. But the Senate’s package also would likely include cigarette and alcohol tax increase and seek to raise $500 million more next year.
At least three state panels have examined tax and fiscal reform since 2000, and the institute focused on the topic at its annual 2006 forum in Raleigh. The institute then created the Business Committee on Financing the Future to find consensus on tax reform. Hunt said the problem is as simple as mowing one’s lawn. A low-income resident pays the sales tax – 6.75 percent in most of the 100 counties – when purchasing a lawn mower. But the wealthy resident pays no tax on the landscaping service hired to cut the lawn.
Roland Stephen, an institute assistant director, said North Carolina has the lowest tax burden on business in the nation but has relatively high corporate income tax (6.9 percent) and top individual income tax (7.75 percent) rates.
The committee suggests rates be lowered. At the same time, the sales tax would be extended to more services and cover some currently exempted items, which could include food.
The individual income tax should be simplified and have fewer deductions and exemptions, the panel said.
Lawmakers should consider alternatives to calculate corporate taxes, according to the group. One method, called “combined reporting,” attempts to calculate better what percentage of a multistate corporation’s activities are in North Carolina.
Some business entities will likely have to pay more in some areas, but the key will be to persuade their lobbyists and lawmakers that reform is best for the state, said John McNairy, chairman of Tidewater Transit Co. in Kinston and another committee co-chairman.
“There are winners and losers. Everybody’s going to have to pay and sacrifice at some level,” McNairy said. “The reality is you’ve got to have ‘buy-in’ from everybody.”
