State tax overhaul proposals take shape

Emboldened by victories in last November’s election, Republicans in both chambers of the N.C. General Assembly have worked for months on separate proposals to overhaul the state’s tax code.

But past attempts at comprehensive reform in North Carolina failed — and state residents seem dissatisfied with legislators’ recent efforts.

A poll released Tuesday by Public Policy Polling, a left-leaning firm based in Raleigh, shows that only 14 percent of state residents support the Senate’s tax plan, while 11 percent support the House’s bill, which was introduced last week.

Almost half of respondents were undecided about both proposals.

Ferrel Guillory, director of UNC’s Program on Public Life, said people often hesitate to embrace tax reform.

“Tax reform is something that has been difficult for the Democrats, and it continues to be difficult for the Republicans,” Guillory said. “It’s not surprising that the public doesn’t immediately see a benefit.”

Members of both the House and Senate say their reforms make state taxes more fair by cutting the rates for sales taxes, individual income taxes and corporate income taxes.

The proposals would make up for those cuts by taxing more goods, like prescription medicine and groceries, and taxing more services.

Douglas Shackelford, associate dean of the MBA@UNC Program, said while the House’s plan is more moderate, both proposals reflect legislators’ belief that taxes impact economic growth.

“If you believe that business activity — hiring workers, expanding your operations and so on — is highly responsive to the taxes that are levied, then … a reduction in the income tax would account for an expansion in the economy,” he said.

“I think it’s a right move in the direction of taxing services more like we tax goods.”

But Alexandra Sirota, director of the Budget and Tax Center at the N.C. Justice Center, said both plans would place heavier burdens on low- and middle-income taxpayers, who spend the highest proportions of their income.

According to the N.C. Department of Revenue, tax exemptions for groceries and prescription medicine totaled more than $1 billion in fiscal year 2011-12.

Durham resident Zelda Spivey said most of her monthly costs go to prescriptions and groceries. Taxes on those goods would mean she would face some tough choices, she said.

“I would have to skip some (medicine) one month to get food,” she said.

Gene Nichol, director of UNC’s Center on Poverty, Work and Opportunity, said reforms would lower quality of life for lower-income families and benefit wealthier ones.

“(Republicans) have this mantra that they’ll never raise taxes, except in one circumstance — to increase the taxes of people making about $35,000 a year with kids who are working,” he said.

Roy Cordato, an analyst at the conservative John Locke Foundation, said if reform legislation passes this session, it will likely be a compromise between the House’s tax bill and the Senate’s version.

Senate leaders said they plan to formally introduce their tax proposal after they pass a final budget in coming weeks.

Guillory said the proposals will continue to develop as legislators incorporate feedback from Gov. Pat McCrory and the public.

“Mostly it’s important that the legislature have all the options on the table.”

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