Tax reform, not

Jul. 16, 2013 @ 06:12 PM

After weeks of wrestling with competing plans and several days of tense, mostly behind the scenes negotiations, Gov. Pat McCrory and legislative leaders finally unveiled Monday their revisions to the state tax code.

We are glad they have cleared this important hurdle and can now move toward crafting a budget -- a process which confronts disagreement not just between Republicans and Democrats, but between more moderate and more aggressive factions in the majority party. The budget, for the fiscal year that began July 1, already is more than two weeks late, and counting.

Let's first be clear about one thing the tax plan announced Monday, and which as expected sailed through its first steps of legislative approval Tuesday, is not. It is not tax reform, at least not the sweeping overhaul of our creaking tax code the governor and the legislative leadership set out to deliver and which has eluded proponents for years.

Don't take our word for that. Listen to Republican State Sen. Bob Rucho of Charlotte, who minimized Monday's agreement as no more than "the first itsy-bitsy step toward tax reform."

The tax plan now headed toward final passage, probably Wednesday, is more correctly characterized as a significant tax cut, minimally offset by some changes such as a modest broadening of the sales tax.

Because it is largely a tax cut, it also defies an underlying tenet of no less a figure than McCrory himself, who said at the outset of this legislative session he wanted reform to be "revenue neutral." This plan is far from that. Estimates are that it will deprive the state of some $2.5 billion in tax revenue it otherwise would collect over the next five years.

Not surprisingly, Democrats – and our delegation – were highly critical of the plan. “Their plan gives huge tax breaks to out-of-state corporations and millionaires while balancing those breaks on the backs of the middle class and working families,” Durham’s Larry Hall, the House minority leader, complained.

We can’t say that we’re happy with the plan, either. Like McCrory at the start of this session, we would have preferred a revenue-neutral plan.  We agree that there are areas in which we need to rein in state spending, but a flat revenue plan in the face of rising population and growing higher-education enrollment, for example, would still have led to spending cuts.

But the compromise ultimately came closer to the more modest plans favored by the House and by McCrory than to the more radical tax plan originally favored by the Senate. Even low- and middle-class taxpayers will see some reduction in their income tax bills. Social Security income will continue to be exempt from state taxes. Most homeowners will still claim a mortgage-interest deduction. Corporate income tax rates will fall, but not nearly as dramatically as the Senate wanted.

This plan’s proponents believe that the projected revenue losses will be offset by the economic growth and job-creation the tax cuts will provide. We’re dubious – but it’s a done deal, and for the sake of the state, we hope they are right.