New bill may open debate about state tax reform

Mar 25, 2013

Getting a handle on where the state tax reform discussion is heading has been a particular challenge during the first quarter of 2013.  Whether income taxes -– personal and corporate -- will be completely swept away and North Carolinians will find themselves paying more for goods and services is still a wide-open question.  A new, bi-partisan piece of legislation, however, might force the debate into a broader public forum.

The bill, sponsored by Democratic Representative is called “Lower tax rates for a stronger North Carolina Economy” and could scuttle Republican efforts to keep the tax reform discussion private.  Filed last Thursday, Senate Bill 395 is a bi-partisan alternative to the Senate plan currently on the table. 

Political Reporter John Frank of the News and Observer says he’s been having trouble getting information.  And it appears, says Frank, that Republicans expect to emerge with a consensus plan that will pass through the General Assembly easily.

“These are major decisions.  If we’re looking at eliminating corporate and personal income tax, that’s a $12 billion hole in our state budget that would be created and how to pay for that and who pays for that – you know who bears the burden of our tax system is a discussion that I think Democrats in particular want to have out in the open.  They’ve been very critical of the Republicans – you know – working behind the scenes in the Senate and the House.”

The current Republican tax reform concept proposes eliminating both personal and corporate income tax.  Adding sales tax to dozens of services not currently taxed – such as landscaping, attorneys’ services or pet grooming -- is one way to plug the revenue gap created by the loss of income tax.  But critics call that approach “regressive” and point out that lower-income people would wind up paying much more of their earnings in taxes.

The News & Observer’s John Frank says he expects to see legislation that’s essentially revenue-neutral filed by the end of the month.
And that means that April, which is also the peak of tax-filing season, is likely to be the month dominated by a broader public conversation on tax reform.