Christensen: Tax overhaul could backfire on Republicans

rchristensen@newsobserver.comJanuary 26, 2013 

The Republican legislature’s “tax reform” plan represents a high-risk political strategy for the GOP.

In fact, Republican tax reform has the potential to do for the GOP what health care reform did for the Democrats – create tremendous political blowback.

Republican lawmakers are considering a nearly complete rewrite of the tax code, abolishing corporate and income taxes and replacing them with sales taxes and taxes on services.

The rationale is that the current tax code, the product of the 1930s, is antiquated – a point with which nearly all the experts agree. And they argue that abolishing those taxes would make North Carolina more economically competitive – a point on which there is no consensus.

But without going into the pros and cons of the proposal, shifting much of the tax burden to the sales tax – which people pay every time they go to the store – is politically explosive.

The sales tax was enacted in 1933 as part of a restructuring of state government. One of North Carolina’s smartest governors, O. Max Gardner, pushed through the new tax code so the state could finance operations during the Great Depression.

But he was so wary of the sales tax that he left it to his successor, John C.B. Ehringhaus, to enact a 3-cent sales tax.

Gov. Terry Sanford in the 1960s ended the sales tax exemption on food to help pay for the state community college system. The tax was so unpopular that Sanford was dubbed “Food Tax Terry.”

When the Republicans won control of the state House during the 1994 Republican revolution, one of their battle cries was the elimination of the food tax – which they enacted.

Now, two decades later, Republican legislators are proposing to restore the food tax – and likely make it far higher.

The sales tax is unlike any other tax. It is paid over and over again. It shows up on every sales slip.

At campaign time, Democrats would almost assuredly mass-produce bumper stickers like: “Vote against the GOP food tax” or “Food Tax Pat.”

Republican arguments that they did it to get rid of the corporate and income taxes won’t fit on a bumper sticker.

Republican lawmakers will also likely anger powerful – and Republican-leaning – constituencies such as retailers, who will not relish being turned into North Carolina’s major tax collector.

The seven states that have no income tax tend to have streams of revenue that North Carolina does not have – oil fields in Texas and Alaska, casinos in Nevada and tourism in Florida.

Last week, Art Pope, Gov. Pat McCrory’s budget director, put some distance between the governor and the legislature’s idea of replacing the personal and corporate income taxes with a sales tax.

Pope also said he had “great concerns” about the concept.

House Speaker Thom Tillis, a likely U.S. Senate candidate in 2014, said last week that the legislature needs to move cautiously. Tillis, like McCrory, is committed to cutting the corporate and personal income tax rates but seems nervous about a more sweeping overhaul.

Health care reform is the main reason Republicans are in power in Raleigh – having won office as part of a Republican backlash in 2010. A similar backlash could be in the works for the Republicans.

It would be ironic if Republicans, who built their image as the low-tax party, inadvertently rebrand themselves as the tax party because of the proposed tax overhaul.

Christensen: 919-829-4532

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