The following editorial appeared in the Fayetteville Observer:
Nobody likes to pay taxes. Well, hardly anyone – there are a few folks out there who enjoy supporting their government and its works, but they’re easily drowned out by the masses who beg to differ.
The latest edition of North Carolina’s executive and legislative branches of government has pushed hard to cut corporate and individual income taxes, and we’re all enjoying lower rates. Although the cuts benefit upper-income earners more, they have lessened the burden on even those in the lowest brackets.
But as a story in Sunday’s Observer noted, what one hand of government gives back, another hand takes away. The state is balancing its budget and making up for the income-tax cuts by broadening the state sales tax to cover a growing array of services. The 7 percent sales tax has been extended to a long list of services, including automotive repair, shoe repair, clock and jewelry repair, furniture reupholstering, cellphone and computer repair, tuning of musical instruments and clothing alterations.
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The changes don’t sit well with many of the workers who will add tax collection to their duties. Many of them are one-person shops, and the bookkeeping alone will be time consuming.
And when their customers see the de facto 7 percent price hikes, they won’t be pleased, either.
The counties – especially the smaller and more rural ones – will feel no pain. They’ll be pleased. Lawmakers revamped sales-tax distribution formulas when they added the levy on services, so that poorer counties would do best. Cumberland, for example, will see only a $274,000 increase in sales-tax revenue. But Harnett will gain $3.9 million, and Hoke’s take will increase by $1.9 million.
What’s worrisome here is the deliberate shifting of the tax burden away from income and toward goods and services. In a traditional progressive income tax system, lower-income residents have the lowest tax rates and the highest earners pay the highest rate. Increasing the sales-tax burden hurts the poor most, because they spend more of their income on now-taxable goods and services and generally live paycheck to paycheck. This is the down side of the “flat tax.” But many proposals for that broad sales tax buffer it with rebates or exemptions for the poor. North Carolina isn’t doing that. The poor simply have a new financial burden on their already-tired shoulders.
We see the need and the fairness of expanding sales taxes to services, but what we don’t see is any effort by our state’s leaders to help the poor cope with their new tax burden, in the way graduated income-tax rates did. We hope that will be addressed when lawmakers return to Raleigh next month.
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