From Tom Campbell, former assistant N.C. treasurer and host of NC SPIN, a statewide television talk show:
N.C. legislators have been to school in the complications and frustrations resulting from tax policy changes. Some of this session’s conflicts were a result of changes made to the state’s tax codes in 2013. Three lessons can be learned: you must keep the foxes out of the henhouse, you must feed the beast, and real reforms must be uniform, understandable and enforceable.
Give legislators credit. North Carolina’s tax codes are hopelessly in need of change. Through the years they have been layered with tax preferences, exceptions and loopholes. The 2013 session was the first to seriously attempt tax reform.
Of more than 300 special tax breaks, lawmakers chose 48 to sunset or cease. This initial step, they proclaimed, would begin meaningful reform. Experienced observers understood they were about to learn lesson one about foxes and the henhouse.
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The late State Treasurer Harlan Boyles, long an advocate for tax reform, was also a realist. He knew the only way to achieve comprehensive tax reform was to begin with high-level buy-ins from lawmakers and the governor, establish an experienced task force, swear members to secrecy, work behind closed doors, then, with the support of legislative leadership, bring their work product to the floor of the legislature with the understanding it could be voted up or down, but not amended. Otherwise tax reform would die a death by a thousand cuts, as one special interest group after another fought for their interests.
We are witnessing that today. We aren’t finished with the fight to preserve film and historic preservation tax credits, just two of the “foxes” seeking access to the proverbial henhouse.
The 2013 tax changes cut income taxes, especially for corporations and higher-earning individuals. Using what were considered reliable, conservative projections, legislators built a biennial budget based on declining state revenues resulting from those cuts, but also factoring in revenue growth from an improved economy. But projections aren’t reality. State revenue dropped some $200 million more than anticipated. Further, there is concern next year’s revenue deficits will grow even larger with the second round of tax cuts. Those concerns affected this year’s budget deliberations. Lesson two: You must feed the beast of state government.
The third lesson is that the goal of tax reform is to simplify tax codes. We have this romantic vision that tax policy should be fair, with no one having an advantage. Taxes should be easy to understand as well as efficient to collect and enforce. The 2013 reforms nibbled around the edges but fell short of the goal.
This reminds us of the proverb about a person with money meeting a person with experience. At the end, the person with experience leaves with money and the person with money leaves with experience.
The state has less money, certain taxpayers have more, and legislators have more experience. The question is what they will do with that experience.