In the early 1960s, Democratic Gov. Terry Sanford pushed for a sales tax on food to raise money for schools. His critics called him “Food Tax Terry,” or something like it, for the rest of his life.
Today’s Republican legislative leaders should take care they won’t be remembered as “Food Tax Phil” or “Food Tax Thom.” They could be if they take tax reform in the wrong direction.
An overhaul of the state’s tax structure is badly needed. It was designed for an agricultural and manufacturing economy in the 1930s. In recent years, plenty of proposals have surfaced for updating the revenue system to fit a service economy. Nothing has gotten done so far.
Senate leader Phil Berger vowed recently that this will be the year. It’s certainly a good year to begin, but a spokesman for House Speaker Thom Tillis expressed proper reservations: “We must take a pragmatic approach with an understanding of the full effects of any plan that is proposed.”
Berger voiced his desire to drive down income tax rates as low as possible, even zero. Senate leaders are looking at replacing lost income tax revenue with a broad-based, statewide consumption tax at a higher rate than the present combined state-local sales tax of 6.75 percent — perhaps close to 8 percent. …
That raises concerns.
First, proponents of tax reform generally list “revenue neutrality” as a goal. Berger clearly believes state government should make do with less money. Presumably, he would favor reform that delivers lower revenues than today’s recession-era level. Is that really desirable?
Second, how would the burden of paying taxes be redistributed? A sales tax is regressive because people with modest incomes are compelled to spend most of what they earn rather than save or invest it. Their taxes as a share of income would increase without some means of offsetting their obligations. Without income tax exemptions, such as for children, larger families could pay a stiff penalty. After all, they have to purchase more food, clothing and other necessities. Rather than pay less taxes with more children, they’d pay more. …
North Carolina must devise a tax system that raises enough revenue to fund critical services and make productive investments, and that also requires those who can best afford it pay the largest shares. A nearly 8 percent tax on groceries for the poor would earn the politicians responsible a bad name.