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Clodfelter takes one more kick at tax fixes

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  • Major provisions

    • Replaces three current personal income tax brackets (6%, 7%, 7.75%) with one (6%). Exempts the first $11,000 for joint returns and replaces standard and itemized deductions with tax credits available to all taxpayers.

    • Cuts corporate income tax rate from 6.9% to 6%. Eliminates many credits.

    • Cuts franchise tax rate by a third, but extends it to LLCs.

    • Cuts the sales tax rates from 4.75% to 4.5% and applies it to many services that are currently not taxed.



Sen. Dan Clodfelter, a Democrat from Charlotte, has been trying to change the way North Carolinians pay taxes for more than 10 years now. He hasn’t been able to get it done, even when Democrats controlled everything and he was one of the state’s more powerful politicians. Wouldn’t it be something if he finally pushed major tax reform through only after he was relegated to the back bench?

Charlie Brown always believed this was the time he was going to kick that football. And Lucy, played by the Republican leaders, could still leave Clodfelter flat on his back. But it doesn’t look that way right now. Clodfelter filed a 57-page tax reform bill on Thursday, and senators from both parties are scrambling to sign on as co-sponsors practically by the hour.

Clodfelter intentionally filed the legislation with two Democrats and two Republicans as sponsors. He didn’t want it to be seen as “the Democratic plan” or “the Republican plan.” Bipartisanship, he knows, is essential on something as fundamental as overhauling North Carolina’s tax system.

He struck a chord somewhere. Seven more senators have signed on as co-sponsors already, giving it 11 in all – four Democrats and seven Republicans. One is Sen. Bob Rucho, R-Mecklenburg, the chairman of the Senate Finance Committee. Rucho has led Republicans’ public campaign for tax reform and could be a crucial ally. Clodfelter says he also has talked with Gov. Pat McCrory’s staff and key House leaders and the response was encouraging enough for him to file the bill.

Such wide-ranging support is striking, because North Carolina has been talking about rewriting its tax code since the 1980s with little progress. The code has had no fundamental restructuring since the manufacturing-based economy of the 1930s. The state has changed tremendously since then but its tax laws haven’t. The result: A system that is less stable, less predictable, less fair and less in tune with economic activity than it should be.

No doubt Clodfelter’s proposal will get picked apart, as any such crucial legislation deserves. But to have early, widespread, bipartisan support even after putting out dozens of specifics suggests that the state is closer to major tax reform than ever.

Clodfelter’s plan follows the principles that study commissions have recommended over the years: Cutting personal and corporate income tax rates and the sales tax rate while closing loopholes, eliminating special interest credits and broadening the base to which the taxes apply. (See box for some details.)

The proposed system would bring in the same amount of money as the current one, Clodfelter says. But it would lower rates, which are among the highest in the South and which can make the state less attractive to business. It would also be more stable through the long-term ups and downs of the economy. Clodfelter points out that the state needs a tax system that not only keeps the dips from being too deep during recessions but one that keeps the peaks from being too high in good times. Flush state coffers translate to more government spending that becomes unaffordable once the economy cools down.

Legislators (and the Observer editorial board) need to study the details of Clodfelter’s bill more closely. But it appears there are no “showstoppers,” as Clodfelter put it, that would render the bill DOA. One big question on any tax reform is how it changes the distribution of the tax burden. Clodfelter’s bill appears to have included enough protections for the lower-income and the middle class, so that lower income tax rates and broader sales taxes don’t disproportionately shift the burden to them.

One man’s loophole is another man’s sacred cow, though, and special interests are already drumming up support for protecting their favorite provisions in the tax code. So nothing about getting this legislation passed will be easy. But maybe this time – this time! – Clodfelter really will kick that football.

Reach me at tbatten@charlotteobserver.com.
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