North Carolina is contemplating the elimination of its income and corporate taxes – and offsetting those cuts with increases in the sales tax. This plan – pushed by Republican State Senator Bob Rucho of Charlotte – would scrap the state’s 6.9 percent corporate levy as well as its individual income tax brackets, which range from 6 percent to 7.75 percent.
The plan’s “cost?” Around $12 billion.
To offset this “lost” revenue, Rucho is proposing to raise the state’s combined state and local sales tax limit from 6.75 percent to 8.05 percent – and apply that rate to dozens of items which are currently exempted from the sales tax (including groceries).
The “take?” Around $12.9 billion.
Wait … does that make this a $900 million tax hike? Pretty much …
This website has made no bones about its support for income tax relief. We believe it is the absolute best thing a government can do if it wants to raise income levels, empower the consumer economy, stimulate job creation and encourage capital investment.
But politicians dilute – or completely lose – this stimulative effect when they raise taxes as part of a “swap.” Just look at the disastrous effects of the 2006 property tax-sales tax swap in South Carolina.
Economic growth isn’t achieved by shifting a tax burden … it is achieved by reducing one.
Sadly politicians – especially “Republican” ones – are slaves to the doctrine of revenue neutrality, which maintains tax relief occurs in a vacuum and every dollar worth of tax cuts must be “paid for” with a corresponding tax hike. Or absent these offsetting hikes, they propose ridiculously small cuts with absolutely no stimulative value …
Whatever North Carolina winds up doing, South Carolina must pay very close attention (which lamentably isn’t our strong suit). Changes to the tax code in our neighboring state will have a direct impact on our economy (particularly in the eleven counties which border North Carolina) – and our leaders must be on the lookout for risks as well as potential competitive advantages.