Christensen

Let's look at the tax loopholes

Staff WriterJanuary 9, 2011 

The new political mantra in Raleigh is "everything is on the table" when it comes to meeting the projected $3.7 billion budget shortfall.

That is, of course, not exactly true. Layoffs are on the table. Deep budget cuts are on the table. Privatization of government services is on the table. Government reorganization and downsizing are on the table.

Tax hikes, however, are not the table.

Last week, the incoming Republican legislative leaders, Sen. Phil Berger of Eden and Rep. Thom Tillis of Cornelius, once again made it plain that there is no support in the new Republican majority for either raising the tax rate or extending the temporary $1.3 billion tax hike passed in 2009 that is due to expire in July.

Democratic Gov. Bev Perdue said she is also not looking at tax increases for now, although her comments have been less adamant than those of the Republican leadership.

But there is a huge pot of money out there that could be tapped for hundreds of millions - perhaps billions - to help the state get through the fiscal crisis.

North Carolina's tax code is a Christmas tree of loopholes, credits or exemptions. Sometimes they were put into the law for good reasons. But quite often they were put in there because an industry had a powerful lobbyist in Raleigh or had helped bankroll some political campaigns or had a friend who was a powerful legislator.

Much of the tax code makes little sense. Why does the state levy a 5.75 percent sales tax on most items, but 3 percent on aircraft and boats or 2.83 percent on electricity sold to commercial laundries and dry cleaning establishments?

Auto dealers get a break on the sales tax cap on automobiles as well as on trade-in value deductions. Insurance companies get breaks because of a cap on the taxable portion of premiums. State law limits the tax on the sale of electricity. Big corporations benefit from a practice called"mega reporting." Telephone companies get a break on the purchase of equipment. Farmers get a tax break on the purchase of supplies.

The N.C. Department of Revenue's Biennial Tax Expenditure Report identifies $5.8 billion in yearly tax credits, deductions, preferred tax rates and other loopholes.

Lawyers over 75 get a tax break. So do faith healers. Holding companies, telephone companies, cigarette companies, savings institutions, nonprofits, newspapers, chambers of commerce and stock car teams all get tax breaks.

The report is 131 pages long.

Some are presumably politically untouchable, and any attempt to end the exemption would be regarded as a tax increase. The largest tax break is the $1.1 billion sales tax exemption for food and prescription medicine.

But that is not true for hundreds of other tax breaks, most of which have not received scrutiny since they were placed on the books - in some cases decades ago.

If zero-base budgeting is a good idea, then does it not also make sense to take a fresh look at special interest tax breaks?

robc@newsobserver.com or 919-829-4532

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