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Fair, adequate and stable: That's a tax system for us

Elaine Mejia directs the Budget and Tax Center, a project of the N.C. Justice Center, an anti-poverty organization.

Few public debates are more intense than those involving taxes and tax reform. Unpleasantness aside, North Carolinians cannot wait any longer for reform. In keeping with North Carolinians' love of car- racing, the state needs to make its tax system FAST (Fair, Adequate and Stable Taxation).

Our current tax system is unfair, especially to low- and moderate-income taxpayers; it is not adequate because revenues do not keep pace with economic growth without increases in tax rates; and it is unstable, as evidenced by the unsustainable boom of the late 1990s and the plunge of the early 2000s.

While large-scale reform will take time, effort and political will, three quick steps would make North Carolina's tax system much FASTer.

* First, close corporate tax loopholes. No major category of state revenue has been eroded as dramatically as the tax on corporate profits. Just last month, the state Department of Revenue released a report demonstrating that loopholes reduced the amount of tax revenues paid by businesses by almost $1 billion. Because many of these loopholes benefit large, multistate corporations, much of that revenue leaves the state and does not help North Carolina's economy. In fact, there is no credible research proving that these loopholes accomplish their objectives.

* Second, create a State Earned Income Tax Credit. North Carolina takes about 6 percent of total income of the wealthiest 1 percent, whose average annual income is $813,000, when all state and local taxes (sales, property, excise, etc. ...) and deductions are accounted for. In contrast, folks at the bottom, earning about $9,100 per year, pay nearly 11 percent of their income in taxes. This pattern has held even as incomes of the wealthy have soared and incomes of the middle-class and poor have stagnated. A State Earned Income Tax Credit would serve to reimburse low-wage workers for a portion of their total tax bill and would act as a "shot in the arm" to all 100 of the state's counties, rural and metropolitan.

* Third, broaden the sales tax base and lower the rate. North Carolina's combined state and local sales tax rate has more than doubled since the early 1970s, but, after adjusting for rate changes, the amount of revenue collected per person is declining. One main reason is that our economy has become more service-based, but we don't tax most services. If we broadened the sales tax base to include most services, we could lower the state sales tax rate from 4.5 percent to 3.25 percent, leaving us with one of the lowest rates in the nation.

Every decade or so a bipartisan blue-ribbon commission recommends overhauling the state's tax system. But once the starting pistol fires at the General Assembly, the engine sputters. Legislators spend most of their time in pit stops, making some minor positive adjustments and twice as many negative ones. Our state lawmakers need to do better by the hard-working families and taxpayers of North Carolina. Let's stop "dodging and weaving" and head straight for the finish line. It's time for North Carolina's revenue engine to run FAST.

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