Civitas ReviewThe Blog of the Civitas Institute

Jun

12

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In a voice vote, the Senate Finance Committee this afternoon approved their latest version of tax reform.

The discussion was spirited throughout, and the room was jam packed with onlookers and media. Some highlights from the discussion:

• When discussing the potential negative impact on local government revenue due to the repeal of the local sales tax on groceries and local privilege taxes, Senate President Berger replied that counties will essentially have two choices: reinstate the local food tax or reduce spending
• Sen. Harry Brown stated that the status quo can not continue, and that NC’s current tax code just isn’t working. He used the specific example of auto manufacturing plants, pointing out that several other SE states have significant auto plants while NC has none
• There was consensus that NC needs to reform its tax code, it is just a matter of how to best go about changing it
• Sen. Berger added that NC has to do something, and the current Senate bill is “the something that’s available to us.”
• Sen. Rucho, the leading voice for tax reform in the Senate for several months, made lengthy comments in opposition to the bill, and voted against it. His opposition was based on his view that the tax plan does not go far enough to stimulate much-needed economic growth in NC. Rucho still favors the original plan that broadly expands the sales tax base, believing that better positions NC to ultimately eliminate income taxes – his ultimate goal. Among his comments: the current Senate tax bill “does not change the way we do business”; it is “not achieving comprehensive tax reform”; the bill represents “a stopgap approach that works against the direction we want to take;” and the bill “is not the right pathway…I can not support this bill.” Rucho added that if settling on this tax bill for political reasons like re-election is the main concern of the committee members rather than doing the right thing, then maybe none of them should be there.

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Jun

12

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If you’re a North Carolinian, odds are you know about the so-called “Moral Monday” protests at the General Assembly. Since late April, an NAACP-led group of progressive organizations has assembled to protest the legislature’s so-called “reckless and heartless policies.” Protestors show up, enter the General Assembly, sing and carry on a bit, ignore requests from police officers to leave the premises, and then get arrested. If you’ve been following the News and Observer or WRAL coverage, you probably think that the protestors are Average Joes, a cross-section of North Carolina. They’re not, but more on that later.

I’d like to take a step back for a moment, and talk about what ‘Moral Mondays’ really mean for republican government in North Carolina. Not big-R Republican government, but republican government: a system in which the people govern themselves by electing officials to represent them. In order for elections and free government to work, there has to be majority rule. Democracy ceases to function when a vocal minority abrogates the electoral will of the people. And right now, that is exactly what is happening in North Carolina.

Protest leaders such as the Rev. William Barber have argued that the majority is abusing its power. And it’s true that sometimes majorities can abuse their powers: in the early 19th century, Alexis de Tocqueville pointed out the dangers of exactly this problem. But the response to this should not be law-breaking. In 1838, Abraham Lincoln urged people to obey even laws that they disagreed with:

When I so pressingly urge for a strict observance of all the laws, let me not be understood as saying there are no bad laws, nor that grievances may not arise … I mean to say no such thing. But I do mean to say, that, although bad laws, if they exist, should be repealed as soon as possible, while they continue in force, for the sake of example, they should be religiously observed.

Lincoln’s concern was that contempt for specific laws would breed contempt for the laws in general. Now, the rights of free speech and assembly are sacred in the United States, and I’m certainly not suggesting that disaffected North Carolinians should not avail themselves of these things. But by breaking the law, Barber and his associates are costing North Carolina taxpayers, hurting the North Carolina public safety system, and  — worst of all – undermining the rule of law in our democratic republic.

Jun

12

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Late yesterday afternoon, the Senate Finance Committee released their legislative response the House’s approved tax reform plan. The Char-O has a rundown and reaction here.

The main provisions of the plan include:

• Elimination of the corporate income tax by 2017
• Reducing the personal income tax to a flat rate of 5.25% by 2015, while providing a zero bracket on the first $15K for married filers and $7,500 for singles
• Eliminates almost all personal income tax credits and deductions – maintains the child tax credit and would include Social Security income to the extent it is included in the federal adjusted gross income
• Eliminates the franchise tax by 2018 and replaces with a “business privilege tax”
• Eliminates current state and local privilege taxes
• New business privilege tax will be extended to corporations and businesses organized as S-corps and LLC’s; will be a flat rate of $750 for LLC’s, S-corps and $5k for corporations
• Eliminates many exemptions and special sales tax rates – bringing them in line with the standard state tax rate
• Eliminates the local sales tax on food by Nov. 2016, offers local governments the option of bringing the local food tax back in Jan. 2017 if they so choose
• Does not broadly expand the sales tax base to goods and services not currently taxed – as outlined in the original Senate tax reform plan
• Eliminates the state death tax
• Projected to reduce taxes by a combined $684 million over the next biennium compared to the revenue the current tax code is projected to generate

For the full text of the legislation, click here.

For a summary, click here.

Click here for a comparison between the House plan and the new Senate plan.

Click here for fiscal impact of the new Senate plan.

Jun

11

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With tax reform debates in full swing here in NC, the predictable left-wing spin is that anything that drifts from the status quo would result in a “big tax break for the rich at the expense of the poor.” One recent example is this from N&O reporter John Frank:

 The median North Carolina family would get a modest tax break while wealthy taxpayers may see a significant cut under a sweeping bill primed for a landmark House vote Friday.

A married couple with two children making $40,000 a year would get an estimated $40 tax break when the legislation is fully implemented, according to a new legislative analysis. If the same family earned $250,000 a year, it would see a roughly $1,700 break. The tax cut increases to at least $12,500 if the family makes $1 million.

Well, duh. Of course those paying a boatload of money in taxes will receive a larger break – dollar wise – than those paying relatively few dollars in state income taxes.

This does lead to the question: who does pay income taxes in NC? After all, the far left cling to a “progressive” income tax because they feel it is more “fair,” in that is compels those who earn more income to pay a larger percentage than those who earn less income.

The latest edition of the North Carolina Comprehensive Annual Financial Report (CAFR) shows a breakdown of who is paying state income taxes in NC.

The main findings (as of 2010):

• The bottom 51% of income earners paid 4.5% of personal income taxes (that’s four-point-five percent)
• The top 19% of income earners paid 71% of personal income taxes
• The top 6% of income earners paid 46% of personal income taxes

Jun

11

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There’s an old song, “Just Another Manic Monday.” The latest demonstration here in Raleigh was Just Another Moral Monday.

The demonstrations have already become old and tired. A bunch of people, most of them Boomers, march in to the Legislative Building. They are asked to disperse, some refuse, and are arrested.

One symptom of a tired event is the tired writing that accompanies it. To wit:

RALEIGH — Despite tornado warnings across the state, several thousand demonstrators gathered Monday under rainy skies to continue the weekly protests of the new policies and laws coming out of the General Assembly.