On January 14, Elon Law professor Andy Haile explored the merits of several tax reform proposals being considered in North Carolina and California on WUNC radio's The State of Things.
Haile, who has been attending tax reform meetings of the state legislature, said changes to the state’s sales tax have been the government’s primary focus in recent weeks, because North Carolina does not yet tax many service-related transactions even though the economy has grown significantly into a service-based economy.
“Our sales tax is really a vestige of the 1930s when it was first enacted,” Haile said. “Most other states…have shifted toward taxing services as well. These meetings have not yet discussed trying to increase revenues through the sales tax, they have discussed trying to stabilize the revenue stream through a broader base.”
Haile said some legislators in North Carolina are also pushing to reduce the share of revenue that comes from the income tax, in order to achieve more stability in annual revenues.
“North Carolina is disproportionately dependant upon our income tax revenues,” Haile said. “We get about 50 percent of our tax revenues from individual income tax. Most other states get about 35 percent. What that means is when people lose jobs, or when investments go down in value rather than up, we are disproportionately affected.”
Large fluctuations in state revenues make it difficult for the state to develop annual budgets, Haile said.
“Our corporate tax here in North Carolina is just extraordinarily volatile,” Haile said. “It is the most volatile of our major taxes. It goes up and down 30 percent year over year on occasion.”
Discussing a proposal in California to eliminate the state sales tax and corporate income tax, and to lower the individual income tax, replacing those with a “business net receipts tax” that shifts the tax burden to businesses, Haile said it seemed unlikely to become law.
“The viability of that is pretty questionable,” Haile said. “What I’ve seen in California and heard is that the leaders in the California legislature are not on board with it. As far as the likelihood of anything like this being adopted or even considered in North Carolina, I think that is extremely low.”
Click on the E-Cast link to the right of this article to listen to Haile’s interview with WUNC radio.