When many of the people being helped by a tax break end up criticizing it, questioning it or refusing comment on it, something’s badly amiss. N.C. lawmakers in the Republican-dominated General Assembly should take note of this reaction to a tax break they gave to businesses in last year’s legislative session.
The break, one of the largest tax cuts in a decade, will mean a loss of $336 million a year in state revenue during an economic downturn. (The loss for the current fiscal year is estimated at $132 million.) And many of the beneficiaries of the break are well-off doctors, lawyers and business owners – including state lawmakers who own businesses. At a time when lawmakers are slashing funding for schools, law enforcement and other vital services, a perk for those who don’t need it is misguided and feels callous.
As the (Raleigh) News & Observer pointed out Sunday, the annual revenue loss from that break would be enough for the salaries and benefits of the 6,400 employees who lost their jobs last year to help balance the $20 billion state budget. About 900 of those employees are teachers who were fired. It’s no wonder some recipients of the tax break are backing away from it.
N.C. Sen. Dan Clodfelter, a Charlotte Democrat, offers a perspective. He said from the Senate floor last year that he and the roughly 175 other partners at his law firm would receive the tax break, and that cost alone would have provided money – eliminated in the state budget – for Mecklenburg’s drug treatment court.
“I appreciate the benefit,” he said. “But budgets are about choices and those choices have moral implications and not just economic ones.”
We understand the intent of the legislation. It was heralded by House Speaker Thom Tillis and Senate leader Phil Berger as a “$50,000 exemption for small businesses – the backbone of North Carolina’s economy.” The Senate initially capped income eligibility for the tax break but later dropped that.
Republican leaders say the tax break will create jobs, including more than 1,100 in the current fiscal year that ends June 30. Come June 30, let’s assess. But that money could have been just as useful to keep some of the 6,400 employees on the job who were let go when lawmakers cut education and other services last summer. And some experts argue that many recipients of the tax break will simply park the money in a bank account where it will have little impact on the state’s economy.
Helping small businesses is a good idea. The owners of those businesses are more likely than those at big companies to plow back into the economy the $3,500 they would save in taxes with the exemption on their first $50,000 of income. But this tax break winds up, as Alexandra Forter Sirota of the N.C. Budget & Tax Center rightly notes, “subsidizing the wealth building for wealthier folks.”
State Sen. Eric Mansfield, D-Fayetteville, has a better idea: “Instead of us battling over what gets cut, maybe we should fix our tax code,” he said.
Clodfelter has also championed reforming the tax code, served on tax reform panels and last session sponsored a comprehensive plan along with Sen. Fletcher Hartsell, R-Cabarrus. The legislature didn’t act on it.
We’ve editorialized about this before. Restructuring the state tax code is badly needed. N.C. lawmakers – Democrats and Republicans – have continually punted on modernizing the code, which hasn’t had a thorough overhaul since the Great Depression. A broader code that includes more revenue generators – such as an expanded sales tax on services – and simplified and reduced overall rates is critical to support the needs of the state and help its recovery.
Wrongheaded piecemeal tax cuts such as the one lawmakers pushed through last year only continue to reinforce an inadequate, outdated and unfair system.