Pundits, partisans and politicos have offered their views on the tax plan passed this week, ranging from praise to pleas. Politics is the art of compromise and this product is full of compromise. Can anyone offer the last word on what our lawmakers have done?
Regardless of the outcome you have to give our legislators credit for their willingness to discuss and make changes, the most significant made to our tax codes since the 1930s. If your definition of tax reform includes changing the structure, the ratio of revenues from various tax categories or even greatly simplifying the tax law this legislation probably doesn’t qualify as reform.
It will lower both personal and corporate income taxes, with the primary beneficiaries being high-income individuals and corporations. Income taxes account for about 55 percent of the state’s general fund revenues. With these tax cuts state government revenues will be reduced, so we can expect more budget reductions.
We are told the reduction or elimination of corporate income taxes will jump start job creation and investment in our state. The belief is that when companies pay less in taxes they have more to invest and will employ more people, but we aren’t sure there is factual justification for those claims.
Balance sheets of publicly traded companies reveal swelling corporate treasuries yet these employers aren’t creating new jobs, due in part to both a lack of confidence in federal and state governments and new technology and mechanization that requires fewer employees.
If this tax reduction/job creation theory is correct we should see proof quickly through a significant drop in our unemployment rate, still the 5th highest in the nation.
The legislature’s fiscal research staff estimates that a family of four earning $60,000 a year will see yearly tax reductions of $84, but since Census Bureau data for North Carolina reports average household income at slightly less than $44,000, this isn’t much help to most families, especially when you factor in the increased taxes on utilities, entertainment and other services they will pay.
Even a family income of $100,000 only enjoys a $364 tax savings. The real savings come for those earning much more – a small percentage of our population. A family of four earning $250,000 per year has an income tax reduction of $2,400. Likely at this level those savings be invested or saved rather than spent and won’t generate many new jobs.
There were a few loopholes closed and exemptions eliminated but not nearly so many as had been hoped for, no doubt due to heavy lobbying from interest groups and the understanding lawmakers got what they could agree upon.
Nobody can give you the last word on this tax package because it will likely be several years before its impact is truly known. Let’s call it a start and hope it is the beginning of more change to come.
The tax compromise passed quickly, with budget passage expected next week. There are many issues left to be resolved and we now enter into the scariest time in our legislative process, when lawmakers often tack amendments or special provisions into the budget or unrelated bills, taking many votes in a short time without proper debate or deliberation. We pray for wisdom and goodwill from our lawmakers.
Campbell is a former assistant state treasurer and host and creator of NC Spin, a weekly panel discussion on state issues that airs on WMYT “MY TV12” at 10 a.m. on Sundays and on WJZY “CW46” at 6:30 a.m. and 11:05 p.m. on Sundays and on WFMY-TV at 5:30 a.m. Sundays.