The Daily Southerner, Tarboro, NC

February 20, 2013

Sales tax regressive?

Bob Harper

TARBORO — The possibility of North Carolina doing away with a state income tax and going with a sales tax has gotten a lot of liberals in an uproar.  “It’s a regressive tax,” they yell.  “It hits the poor and favors the rich.”  This is a very ‘knee jerk’ reaction when we really look at the facts.   

First we look at how North Carolina is doing economically with our current income tax and we find we’re 47th in unemployment.  So something just isn’t working.

Businesses and entrepreneurs don’t see North Carolina as an ideal place to start a company or move their current company here.  If you were a CEO (Chief Executive Officer) of a top company would you move your company to?  First, the CEO knows that he and his employees will be paying higher personal taxes.  In addition his company will pay corporate taxes.

The fact is that the no income tax, but sales tax states have much less unemployment than the income tax states.  So if we want jobs, then killing the income tax and going with a sales tax is a no brainer.  States that tax less achieve better economic performance.  The secret to this is simple — lower taxes and better control of spending.  States with an income tax spent 42 percent more per resident in 2011 than the states without an income tax.

Every state is faced with funding public schools, prisons, social-service programs, etc.  However some states do a much better job of managing their resources.  The employers in no income tax states are reaping benefits that enable them to pay more in salaries and to expand and add on more employees.

No income tax states had a private sector growth of 59 percent of Gross Domestic Product versus only 42 percent in the states with an income tax.  Jobs in no income tax states grew by 4.9 percent versus just 2.6 percent in income tax states over the past 10 years.  Their populations grew, too, by 5.5 percent from domestic migration while all other states lost 1.3 percent in population growth.  People just like no income tax states better than income tax states.

It might be helpful to take a look at some states that have experience going from a no income tax state to having an income tax on its citizens.   A prime example is the state of Connecticut.  For 200 years Connecticut balanced its budget without any income tax and became one of the richest states in the country.  But, that changed in 1991 with the introduction of their first ever income tax of 4.5 percent.  In 2001, the tax was increased to 5 percent.

Connecticut began to lose population as people and jobs left the state.  The state income tax did stimulate one thing … there was a huge spending spree and huge pay raises for state unionized government workers.  In the state of Maryland, they passed a similar income tax in the name of “fairness.”  Does that term, “fairness” ring a bell?

This so called “fairness” caused a third of the millionaires in Connecticut to leave the state.  Who cares about that, everyone hates millionaires anyway, right?  Gee, I would think every state should want as many millionaires living in there state as possible, they spend a lot of money and would pay a lot in sales taxes.  Of course, states like Texas and Florida benefited a great deal from this exodus from Connecticut and other income tax states.

Then, take the state of California ... please take the state of California, some Californians may say.  California is a basket case and is losing population and jobs because of high taxes, uncontrollable unions and a general business unfriendly attitude.

A few things that could help are to move away from federal control of so many of our welfare programs and put state and local governments back in charge.  Still, the best way to deal with poverty is with economic growth.

I think most of us want to take care of those who are mentally or physically unable to work and for those who may be living in poverty.  One big problem with getting as many people off of welfare and into a real job is that a lot of welfare bureaucracies don’t have much incentive to actually reduce poverty.  After all, it’s a great, well-paying job for tens of thousands of bureaucrats who don’t want to see the roles of welfare recipients decrease and have their own income decrease.

We have a tremendous underground economy in this country and in this state.  Think of how many people do work for individuals or families.  These families and individuals cannot report the cost of this work as an expense on their income tax report.  A company could report this as a business cost, but not an individual or family.  Think of how many people do work and are paid in cash and never pay any income tax on this income.  They would, however, pay a state sales tax.

But, we still need to concern ourselves with the poor and shouldn’t tax them with a sales tax … right?  Perhaps, we should remember that those paying with food stamps don’t pay sales taxes. Many reports do not include the value of government benefits received by low income households including rent, subsidized housing and cash income they may receive.

We should also remember that everyone would pay sales tax, except some low income people, and that would include drug lords, criminals and all of those who don’t report all of their income.

(Bob Harper is a Tarboro resident who writes a column of general interest.)