Art Pope says ending state income tax creates more concerns

jfrank@newsobserver.comJanuary 23, 2013 

MCCRORY03.122012.TI

Governor-elect Pat McCrory, right, introduces Art Pope after he announced that he is naming Pope as his deputy budget director.

TAKAAKI IWABU — tiwabu@newsobserver.com

— Gov. Pat McCrory’s budget director distanced the Republican chief executive from a proposal to eliminate income taxes in North Carolina and expressed his own “great concerns” with the concept being floated by leading GOP lawmakers.

Art Pope said the state’s current tax system is plagued by “holes and problems” – but the idea of abolishing personal and corporate income taxes by increasing the sales tax and levying the tax on dozens of duty-free services creates more concerns.

“Maybe if you were designing a tax code from scratch, you may want to look at a broad-based consumption tax,” Pope told a reporter roundtable at UNC-Chapel Hill’s journalism school Wednesday. “To go there from where we are now, I think, is very difficult to do and has lot of impracticalities.”

In particular, Pope cited a concern that the higher sales tax is “absolutely, no doubt” regressive, meaning it would hurt low-income taxpayers the hardest. He said it amounts to a gross income tax “without any regard to whether you are making any money.” And he worried about upsetting the current three-tier system of income, sales and properties taxes, calling it “fairly balanced.”

Pope – the wealthy owner of a chain of retail stores – emphasized that his statements reflected his personal opinion, and not the governor’s stance. But as a leading Republican and conservative political donor who helped elect the GOP legislative majority, his statements represent the strongest opposition so far to the tentative proposals being presented by Senate leader Phil Berger, an Eden Republican, and Sen. Bob Rucho, a Charlotte Republican and finance committee chairman. The lawmakers believe eliminating income taxes entirely would make the state more business-friendly and more competitive among its peers in terms of recruiting new companies.

Where McCrory stands

McCrory may release his tax plan along with his budget in mid-March, and Pope made a point to separate the governor from the lawmakers’ ideas. “Gov. McCrory has never called for eliminating the corporate income tax,” Pope said. “He has said that if others make those proposals he will consider that along with other proposals.”

On the campaign trail, however, McCrory did express interest in entirely eliminating income taxes, particularly the corporate income tax, through gradual reductions, citing the same reasons as lawmakers.

Speaking at the same forum, State Treasurer Janet Cowell said she supports reductions in the state’s income tax rates – but not their complete elimination. The Democrat said such a proposal may potentially hurt the state’s top-notch, AAA credit rating because income taxes account for more than half the state’s annual spending, or roughly $11 billion. “The rating agencies, in general, look for a diversified system,” she said. “So you don’t have a huge amount of volatility or over reliance on just one type of revenue.”

Cowell said she supports a broader sales tax covering more services and the elimination of tax breaks because it aligns the system with the state’s shift from manufacturing to a service economy, another factor that bond rating agencies analyze.

Dueling analyses

The N.C. Justice Center, a liberal think tank, released a report Wednesday that used economic modeling to suggest that the plan being considered by GOP lawmakers would raise taxes on anyone making less than $51,000 because low- and middle-income families spend a greater share of their income on goods and services. The report asserts that a family making $24,999 would see a $500 tax increase and a household earning $1 million would get a $41,000 tax cut.

A dueling study by conservative economist Arthur Laffer – which lawmakers are using as a blueprint for their work – counters by saying the plan would create additional economic growth that would trickle down to all taxpayers. The Laffer report was commissioned by the conservative Civitas Institute, a think tank funded by Pope’s family foundation.

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