In November, we
discussed North Carolina's newly formed State and Local Fiscal Modernization Study Commission, a council tasked with the evaluation of the state's fiscal system. Today, the
Charlotte Observer published an in-depth story about what N.C. State Representative and Commission co-chair David Hoyle sees for the future of the Old North State's tax system--one which experts say has become antiquated and ineffective.
A businessman by trade, Hoyle brings what former N.C. Governor Jim Hunt calls a "big view of North Carolina" to the table as he leads the Commission and the Legislature to bring a 1930s-era tax system up to par. Currently North Carolina's tax system relies exclusively on revenue from sales tax and income tax to fund more than 75 percent of the state's budget. Analysts predict that as state sales tax revenues continue to decline as they have over the past 30 years, and the economy begins to focus on services, which are not taxed, the system will not be stable or reliable enough to satisfy the demands of residents. The issue boils down to a now or later decision, says Hunt.
"The legislature's been forced into using a lot of quote 'Band-Aid' solutions to make the budget work for a number of years," Hunt says. "We need to get this thing on a solid, long-run basis."
States across the American South are experiencing the same problems. Most Southern states do not take full advantage of taxing services as well as goods. For example if South Carolina taxed more services in 2001, the state could have put an additional $670 million dollars in the bank. Its not all about bringing in more revenue though, Hoyle says. "Any changes should be revenue neutral," so if services are taxed, other rates, such as the sales tax, could be lowered. Tax systems can be enhanced to broaden the entire tax base to include any number of resources, not just services.
State politicians across the South have balked at touching the tax codes, citing other priorities or disagreeing completely that a change is even needed. To many, the solution is just another raise in taxes, but Hoyle doesn't buy it. He says just look the surge in growth in North Carolina in recent years as an indicator that taxes do not drive away growth. Last year, North Carolina posted a net gain in population to become the 10th most populous state in the country.
Want to know what your state can do to modernize its revenue system? See Doing Better: Progressive Tax Reform for the American South, from the Center for a Better South.