Herald-Sun editorial: Tax reform a mixed bag

Jan. 06, 2013 @ 02:37 PM

North Carolina’s incoming governor told business leaders last week that he intends to work to reform taxes for the state. What that means, and how that might be accomplished, remains to be seen.

In theory, tax reform is a great idea. State taxes are too complicated and provide too many loopholes – let’s not even get started on the morass that is the federal tax system.

But what does tax reform really mean to Gov. Pat McCrory and the rest of the Republicans in power?

McCrory says that a top priority is examining the new federal health care law and what that means for the state, and also he says he will take a close look at energy exploration needs for the state.

He said that the state’s income tax, sales tax and corporate tax rates are too high compared with neighboring states such as Virginia, Tennessee and South Carolina.

According to the Federation of Tax Administrators in Washington, D.C., corporate income tax rates are 6.9 percent for North Carolina, 5 percent for South Carolina, 6.5 percent for Tennessee and 6 percent for Virginia.

Personal, individual income tax rates are 6 percent to 7.75 percent in North Carolina, 2 percent to 5.75 percent in Virginia, and up to 7 percent in South Carolina. Tennessee does not have an individual income tax, but has a sales tax rate of 7 percent, including 5.5 percent on food. Virginia’s sales tax is 5 percent, 2.5 percent on food; North Carolina’s sales tax is 4.75 percent and South Carolina’s is 6 percent.

A related question is how tax revenue might be made up if tax rates are reduced, and whether cuts to funding for state services will be proposed.

Certainly, there is nothing wrong with taking a close look at tax burdens and proposing changes if necessary. But it would be very unfortunate if that burden shifted disproportionately to people who can least afford to pay it. Sales taxes at set percentages can be a much greater difficulty for people who do not have a great deal of income with which to spend. We will have to wait and see what the governor and his associates plan to propose.