EDITORIAL: Hunt Tax Proposal Raises Questions
Jim Hunt, perhaps North Carolina's greatest modern governor, is like the E.F. Hutton of the old commercials: When he talks, people listen.
That will be particularly true of the set of tax-reform proposals that Hunt's think tank unveiled the other day. The plan is getting the attention it deserves in the Governor's Mansion and the General Assembly, although it advances a marked pro-business agenda and doesn't really address the overwhelming problem facing state government at the moment, which is a yawning budget gap.
Developed in conjunction with Hunt's Institute for Emerging Issues at N.C. State University, the plea for retooling North Carolina's antiquated current tax system was obviously not developed in a vacuum. It comes at a time when tax revenues have headed for the basement because of the current nationwide (or worldwide) recession.
Meanwhile, there has been no accompanying decline in the need for costly state services. Indeed, that need has increased.
Tough Balancing Act
The state's constitution mandates a balanced budget. But at this point, nobody from Gov. Beverly Perdue on down knows how to design one without creating a lot of new pain and suffering.
Just to put the thing in context: If spending stayed at the same level, it is expected that the budget shortfall for the budget year beginning July 1 would approach $4 billion. That's a whopper of a gap, and filling it will take more than a little nipping here and tucking there.
Within that context, it is significant that the Hunt plan, oddly, does not envision raising any more money. Rather, it seeks a more equitable and realistic distribution of the existing tax burden to take into account changes that have overtaken the state's economy over the decades.
Most notably, the argument is that the tax system needs to reflect the fundamental shift that has taken place from a traditional manufacturing base toward an economy depending much more heavily on technology and service industries. For one thing, instead of relying so heavily on income and sales taxes, the Hunt institute and its Business Committee on Financing the Future would shift some of the load toward service transactions that now often go untaxed.
Creating New Problems
That, of course, opens up its own can of worms. The committee would like to see taxes extended to cover an array of services ranging from accounting and legal work to hair styling and landscaping, and each of those gored oxen can be expected to bellow. It wisely excludes medical care, but what about things like automotive care or child care?
Granted, today's economy no longer depends nearly so heavily on the simple manufacture and sale of products. And the Hunt group no doubt has a point when it argues that the state's corporate income tax rate, higher than most surrounding states at 6.9 percent, discourages some new industries from coming here.
But many will argue, with justification, that with so many North Carolinians in a survival mode right now, this may not be the best time for indulging in the luxury of tinkering with the fundamentals of the tax machine -- especially when the proposed change does nothing to balance the budget. Is this really the optimum moment for giving businesses a break while making it more costly for already-strapped everyday citizens to get a haircut or take the family car to the garage?
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