RALEIGH - From 1920 to 1933 North Carolina completely revamped its fiscal system. A state income tax and sales tax were enacted, while the state property tax was removed. After many counties found it difficult to fund infrastructure and essential services, the state increased its financing and control over roads, public schools and prisons.

Now, a new commission -- the State and Local Fiscal Modernization Study Commission -- will begin meeting this month to consider today's fiscal situation. This is appropriate because there are many parallels between the North Carolina of 80 years ago and the North Carolina of today.

Then, the economy was changing from agriculture to manufacturing, people were moving to the cities and the boom times of the 1920s were followed by the Depression of the 1930s.

Today, the economy is changing from manufacturing to services, people are moving to the suburbs and exurbs, and the boom times of the 1990s have been followed by the uncertain times of the 2000s.

Just as in the past, there are four main issues facing the state's new fiscal commission:

• What's the right tax base? The tax base is simply what is taxed, such as individual and corporate income, retail sales and property. Several specific questions arise about today's tax base.

What's the best combination of the tax bases to use? For example, in recent years a larger proportion of revenue has come from the individual income base. Also, the relative size of the sales tax base has been shrinking, as more retail spending has shifted to services, which are largely untaxed, from goods, which are taxed. Should new tax bases be considered and existing ones altered or scrapped?

• What's the right tax rate? The tax rate is the percent of the tax base taken in taxes. One major question, heard most about the individual income tax, is whether one rate should apply for all taxpayers, or should several rates apply based on some characteristic of the taxpayer, such as income. If higher-income taxpayers are taxed at higher rates, as they are now, could this be counterproductive, reducing the state's ability to attract higher-paying jobs?

There's also often a tradeoff between the size of the tax base and the level of tax rates. The same revenue can be derived from a broader tax base and a low rate as from a narrower tax base and higher rate. Which is better?

A broad base/low rate system reduces the degree of interference of the tax system in private decision-making. On the other hand, a narrower base, with more deductions and exemptions, allows public decision-makers more influence over directing private spending to areas the public sector may desire.

• What are the right tax options for local governments? The taxing ability of local governments (counties and municipalities) in North Carolina is controlled by the General Assembly. Local governments have relatively complete control only over the property tax. Levying new taxes or changing other existing taxes requires legislative approval.

Is it time to loosen the strings on local governments and allow them more options in their taxing authority, to reduce reliance on or perhaps replace the property tax? Should local governments have the power, at their discretion, to levy, for example, a local gasoline tax, increase the local sales tax or consider a local income tax? Or, should the state strive to keep separate tax bases reserved for the state and for local governments?

• What's the right division of functions between the state and local governments?

This issue represents a constant tug between two goals that often are in conflict. On the one hand, citizens want some standard level of public services to be available regardless of where they live in the state. Public education, highways and public safety are three good examples.

But on the other hand, citizens want the ability to adjust those service levels to meet local differences and needs, and to see their tax dollars spent locally. The first goal is often accomplished through statewide financing and control, while the second is better met with local decision-making and locally raised funds. What's the best resolution of these twin goals?

The work of the new fiscal commission in North Carolina is not necessarily to recommend increases or decreases in taxes. Instead, its work is more fundamental. Just as 80 years ago, it's time to take a hard look at both the funding and functions of North Carolina's fiscal system and decide if a new structure is needed for a new century.

(Economist Michael L. Walden is a William Neal Reynolds distinguished professor at N.C. State University. He is working on a book about the modern North Carolina economy.)