Wednesday, December 31, 2008

DUH: What's NC taxes got to do with NC mental health reform?

Wonderful piece from NC Policy Watch on the relationship of taxes to the needs of NC citizens: learn from the Obama administration model:

Charting a smoother, steadier course
Tuesday, December 30th, 2008
By Rob Schofield

(cut and paste):


".....For years, experts, academics and multiple study committees have concluded that North Carolina's 1930's-era tax system needs modernization. The shortcomings are obvious and include:
The sales tax is still designed as if the state's economy was exclusively goods-based rather service-based.

Business taxes are rife with loopholes and special breaks that let many large and profitable corporations escape income taxation altogether.

The personal income tax hits lower income working families at almost the same rate as the super rich.

All of these flaws contribute to the system's nagging inadequacy and current, painfully obvious volatility. Even before the current shortfall that's afflicting the state, revenues were not keeping up with inflation and population growth - much less the dire need for improved public services in everything from education to mental health to criminal justice. Now, of course, the situation is at a crisis point with lawmakers confronting a shortfall of as much as $3 billion if they hope to keep services merely at present levels in 2009-'10.

A new and smoother road

Happily, the solution to all of this does not involve rocket science. It lies in the adoption of a more modern, broadly applicable tax system. To put it simply, North Carolina must cast its revenue net in a wider and fairer pattern. Instead of just taxing the same things and constantly raising rates merely to stay even (as we've been doing when it comes to things like the general sales tax rate and tobacco and alcohol taxes) North Carolina must tax more transactions that currently escape taxation altogether. Cast the net widely enough and the state will actually be able to lower the sales tax rate while bringing in a comparable (and more predictable) pot of money.

The same is true when it comes to corporate income taxes. If we do away with the morass of tax breaks and exclusions and costly and unproven corporate "incentives," North Carolina can actually lower the overall corporate profits tax rate while collecting more revenue in a fairer and more predictable way.

A similar approach will work with the personal income tax where the state's essentially flat rate structure (along with federal deductions and other breaks) currently allow the wealthy to pay a much lower share of their incomes in total state and local taxes than is paid by the middle class and the poor. To cast the net in a wider, fairer and more predictably reliable fashion, the state ought to adopt a larger number of income tax brackets. As with the sales and corporate income taxes, this would permit the actual lowering of rates on people in the middle and the bottom while creating an overall pot that stays much more in sync with the general economy.

Mustering the political courage

As noted, the real challenge in effecting such a transformation of the state revenue system is not a matter of "how." State leaders have known for years of the merits of modernization and reform and have pussyfooted around the issue on multiple occasions. The problem of course is in the politics. How does one muster the political "umph" to take on and overcome the daunting roadblock posed by numerous special interest lobbies - the lawyers, the architects, the entertainment industry - in tandem with the market fundamentalist, anti-government crowd who hope to use the current crisis to completely disable and de-fund our system of public structures?

The answer, it seems, must come from an emulation of the approach taken by the incoming national administration in three obvious areas:

Win over the business community. Sure, corporate executives hate change and hate taxes, but most of them hate instability and a crumbling public infrastructure even more. If North Carolina's new leaders really work together in a concerted and thoughtful way, it is likely that they can win over enough of the business establishment to make a political difference.

Kill them with facts. As in most areas of life, there's no substitute for being the smartest, best prepared person in the room. Like the new team in Washington, North Carolina's new administration can win a lot of policy battles and new adherents by soberly and methodically marshalling and disseminating the facts and analyses that support the case for real reform.

Level with the public. For too long, North Carolina leaders of both parties have made pandering to voters' worst instincts (especially on things like taxes) their default political strategy. While many will continue to adhere to this practice, it seems worth a try for the Perdue administration to try something new. It may be a hard sell, but with the Obama administration poised to make real headway via such a "high road" approach that features an open call for people to pull together in short-term sacrifice, it would be tremendous waste not to follow suit in North Carolina...."


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