GOP's proposed cuts and caps would squeeze local budgets

May 20, 2014 

In an outrageous attempt on the part of Republicans to interfere in local government via state legislation, GOP lawmakers are proposing to limit growth in counties’ property tax revenues to 8 percent a year and to cap modest local taxes that businesses pay.

This from lawmakers who campaign for “small government” and oppose intervention from the state or federal government, especially in the form of mandates.

Somehow, this is part of the fanciful notion that the state has to cut all taxes to the bone in order to protect big business (though, yes, some tax cutting would benefit small business as well). The cap on revenue – and the implied limit on taxes – is proposed in the name of improving the state’s business climate, even though North Carolina ranks at or near the top in a host of rankings of states said to be “business friendly.”

The first enemy of economic development, and of individuals’ economic welfare and security, has been a little something called the Great Recession. But Republicans seem to believe taxes are to blame.

That’s why they sliced state corporate and individual income taxes in a way that will benefit to the greatest degree businesses and wealthy individuals. And yet with those cuts came additional taxes on services that will hit hardest those least able to pay.

Just as bad – maybe worse – than the interference in county revenues is a proposal to cap the local taxes that businesses pay cities. In Raleigh, the “privilege tax” brings in nearly $8 million a year.

The tax is fair: Small businesses pay little, and big businesses with millions of dollars in revenue pay more. It is not burdensome: In Raleigh, about half of businesses pay $50 or less, and 80 percent pay $500 or less.

The city uses the money to pay for fire and police protection and to maintain roads. Businesses that pay the taxes benefit from all of those services, so the notion encouraged by some GOP legislators that the tax is some kind of penalty that inhibits business is ridiculous.

And were the cap to go into place, Raleigh and other cities would have to make up the difference with higher property taxes. There would be no other choice, except to cut police and fire services and leave potholes unfilled.

Cutting first and thinking later is nothing new for the Republican-run legislature. Thanks at least in part to earlier tax cuts, there is a state revenue shortfall of $400 million to $500 million projected.

Republicans say they’ll close the gap, no problem. But there is a problem. What if they have to spend all reserves and use nonrecurring money to close the gap? That’s rather like covering one’s monthly bills with savings even though those bills will come due every month.

It’s as if Republicans have declared a war on cities, trying to inhibit their growth (anti-annexation measures also are popular with the GOP) because urban areas tend to be heavily Democratic.

But the real outrage here is in the blatant interference in local government by state lawmakers who have long preached against such interference. Such action also would hurt the economic development on which Republicans claim to be so focused.

Without the revenue from privilege taxes, cities will have a difficult time maintaining services that businesses need. What’s the local economic development team supposed to say to attract a new business? “We’d love to have you here. We need the jobs you would bring. But you’ll just have to learn to drive around the potholes, and we’ve had to cut back on fire and police, so you might want to keep some hoses handy.”

Proposals such as this, driven by ideology and defying logic, are shortsighted and potentially damaging to urban areas and, in the case of limiting tax revenue growth, to development. These are bad ideas that will have bad and predictable results.

Republicans should re-read their speeches of earlier years in which they railed against state interference in local government.

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