Don't reslice the pie: Let's make it larger

Steve Miller of Asheville serves as executive vice president of the Biltmore Company and chairman of N.C. Citizens for Business and Industry, a business advocacy group.

Strong economic growth and more jobs are the answers to North Carolina's social and tax revenue challenges. We must replace jobs lost in recent years -- and create more. Everyone agrees on that. Still, the focus of discussions about how to raise enough revenue to pay for services we all expect from state government too often centers on shifting tax burdens and simply increasing taxes. If current efforts to reform the state tax code are nothing more than an attempt to re-slice the current tax "pie," as opposed to a meaningful dialogue about how best to make the pie larger, then reform will fail.

All of us, as consumers, ultimately pay all taxes. A business must treat income and all other taxes as another cost of producing goods and services and reflect that in its prices. If tax rates get too high, we run the risk of slowing the growth of tax collections because we slow the growth of earnings. High tax rates can also cause businesses to locate in states with lower rates, thus retarding the growth of the tax base.

North Carolina boasts many great attributes including our education system and quality of life. What we lack is a competitive tax structure to foster the kind of economic growth and job creation that will generate the tax revenues needed to protect and build on those positive attributes. That is why our business community seeks to lower the highest marginal personal and corporate income tax rates.

The Washington-based Tax Foundation found that nationally most of the people in the top 1 percent of earners are business owners and entrepreneurs, and that in 2004, business owners paid 54.3 percent of all income taxes. Of the total amount of income taxes collected from business owners, 69 percent came from upper- income taxpayers. The study concluded that lowering top marginal income tax rates benefited many highly taxed business owners, as well as the U.S. economy.

At the state level, lowering the top marginal personal income tax rate will benefit small businesses, which create most new jobs. The growth rate of limited liability companies, mostly small businesses, surpasses the growth rate of any other business entity in North Carolina. LLCs grew from 29,935 in 2000 to 78,166 in 2004. Those businesses do not pay corporate income or franchise taxes, but rather pay tax on the personal income tax scale.

When you consider that 95 percent of the businesses in this state employ 100 or fewer employees and that 75 percent employ 10 or fewer, it is clear that small business is the backbone of our economy. Supporting these small businesses through a reduction in the top marginal bracket will yield an instant opportunity for these businesses to expand and create more jobs.

Lowering taxes is indisputedly good for economic growth. A focus on shifting tax burden from one group of taxpayers to another is a zero-sum game. It obscures the real issue -- how to most effectively build a strong economic tax base to generate adequate tax revenues for much needed government services.