Tillis op-ed promotes NC tax reform as a model for federal action
As Congress works to overhaul the United States tax system, one local leader hopes to use North Carolina as an example.
Sen. Thom Tillis, R-N.C., penned an op-ed in the Wall Street Journal last week about the success of North Carolina's 2013 tax reform under his leadership.
“In 2013, when I was speaker of the (General Assembly House of Representatives), North Carolina passed a serious tax-reform package," he said. "It was based on three simple principles: simplify the tax code, lower rates and broaden the base."
Kathleen Thomas, a professor at the UNC School of Law, said North Carolina used to have a progressive income tax, meaning that a higher income led to a higher tax rate.
"What lawmakers did a few years ago was changed the rate system, so we now have a flat rate, and it’s a lower flat rate than everybody faced before,” she said. “It used to be a progressive rate that got higher and higher — now everybody pays 5.5 percent, and that was a tax cut for everybody.”
Tillis said in his op-ed that the political alignment in the state's government in 2013 was similar to the current political alignment of the national government.
“Republicans controlled the governor’s mansion and both houses of the General Assembly, but there were disagreements within the GOP on how to implement tax reform,” he said. “We made compromises and achieved consensus.”
Tillis said the effect of the tax reform was a large period of economic growth for the state.
“The state’s economy has jumped from one of the slowest growing in the country to one of the fastest growing,” he said.
Tillis also said the General Assembly enacted spending cuts, but said the tax cuts led to economic growth. Thomas said that may not be true though.
“It’s really a combination that would sort of reveal where a budget surplus, for example, is coming from, and where growth is coming from,” Thomas said.
Doug Shackelford, dean of the UNC Kenan-Flagler Business School, said the link between tax cuts and economic growth is very weak.
"Now North Carolina requires a balanced budget — so if you cut taxes, by definition, you have to cut spending," he said. "If you have a tax cut, you’re going to have an offsetting spending cut. We’ll never know what would have happened had we not had tax cuts."
At the federal level, the tax code remains a progressive system, with the lowest tax rate being 10 percent and the highest rate being 39.6 percent. While the N.C. General Assembly eliminated many of the deductions and exemptions in the state tax code, the U.S. Internal Revenue Code has hundreds of pages.
“The tax code is complicated because people are complicated,” Shackelford said. “When we say things like, ‘Well, everybody ought to be treated fairly.' That gets things very complex.”
Thomas said every tax system has its flaws.
“As much as we probably need some reform, I’m not sure that there’s a country out there that’s sort of figured out the perfect solution,” she said.
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