By Todd Cohen
North Carolina’s tax system is broken and needs to be rebuilt – a critical job that can shape the kind of state we want to be.
Our first task is to shake the illusion that we will enjoy perpetual fat times to generate the revenue we need.
In fact, lawmakers must scramble in lean times to balance the budget – a constitutional requirement – using a patchwork of tax laws dating to an economy fueled by farms and factories.
But that system, pieced together by generations of lawmakers doing favors for friends and financial backers, is deeply flawed.
When the economic slump handed the state a $1.5 billion projected deficit, Gov. Mike Easley proposed the seemingly quick fix of a lottery to generate $400 million to $500 million a year.
He pitched his plan by linking the lottery to improving public schools, but could not overcome concerns that a lottery unfairly taxes poor people, promotes gambling and gives government the unsavory and inappropriate job of marketing games of chance.
We need to grow up. That means thinking hard about the future we want, and creating taxes to foster that future.
Nothing is free, yet those who take it as an article of faith that the causes they care about are entitled to government support invariably pitch a fit when asked to pay higher taxes themselves.
Easley has a chance to change all that. By the end of the year, he should hear from two commissions he appointed to look at how government is financed and can be more efficient.
Using the tax system as a navigation tool and engine, he can map our state’s future — broadening the tax base, lowering rates and ensuring a steady flow of tax revenue in good times and bad.
Whatever system he proposes will be stronger and more likely to win lawmakers’ approval if it reflects vigorous civic debate that addresses tough issues and inequities, and takes on sacred cows.
While our income tax is among the highest in the U.S., for example, our 5-cents-a-pack excise tax on cigarettes is among the lowest.
Boosting the cigarette tax could be a big source of revenue, and help keep teens from taking up smoking – although it could unfairly punish smokers who, research shows, are addicted to tobacco.
Taxes on food, services and sales also can be important sources of new revenue, and Easley and lawmakers can be expected to look hard at wiping out exemptions in personal taxes, including deductions for charitable contributions, and ending breaks for banks that borrow tax-exempt bonds.
These issues are critical for North Carolina nonprofits, which depend on government support and charitable donations – and which serve people who suffer most when government cuts its spending on social programs.
Nonprofits should stay informed, join the debate and share the sacrifice needed to make our state a better place to live and work.