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REDUCE HIGHEST RATE? CREATE SERVICE TAX?

Here are some of the ideas for revising North Carolina's tax code.

* Eliminate different rates on sales taxes.

For most items, you pay state and local sales taxes of 7 percent. But there are actually eight different rates, depending on what you are buying. The sales tax also has many exemptions. And there is an $80 sales cap on manufacturing and farm machinery and a $1,500 cap on luxury automobiles. If the exemptions were removed and the rates were uniform, the tax rate could be reduced.

* Adopt a consumption tax.

This tax would apply to services that are not currently taxed. You would pay a consumption tax, for example, when you hire an accountant, a yard service or a plumber.

* Flatten the income tax.

North Carolina has a progressive income tax, meaning the rates rise as income levels rise. The state has four brackets: 6 percent, 7 percent, 7.75 percent and 8.25 percent. If the state moved to a flat rate, everyone would pay the same percentage, regardless of income.

* Reduce highest income tax rate.

Legislators temporarily raised the tax rate to 8.25 percent for individuals making $120,000 or joint filers making $200,000. Some say that reducing this top rate would attract wealthy people or encourage them to remain in North Carolina.

* Reduce or eliminate the corporate income tax.

North Carolina's rate is 6.9 percent, which is 23rd nationally but higher than our neighbors'. Some argue that corporate taxes are double taxation and should be eliminated.

* Index income taxes -- both personal and corporate -- tying them to annual inflation rates.

The revenue from these taxes depends in part on how well the economy is doing. Tying the tax rates to inflation rates would create a more dependable source of revenue.

* Shift Medicaid funding costs from counties to the state.

The federally funded health insurance program for the poor requires states to help pay for it. North Carolina is one of the few states that require counties to pay for Medicaid, a burden that falls particularly hard on poor counties with modest tax bases. Counties pay 15 percent of the state's share.

* Index property taxes based on the consumer price index.

Local governments set and collect local taxes on land and buildings. Tax values often lag behind rising market values -- so when local governments revalue property every few years, many taxpayers are caught by surprise. Tying taxes to the consumer price index would eliminate the sticker shock.

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