The wrong way to redistribute wealth

The Observer editorial board

The small Greene County town of Hookerton would see a revenue increase under a new N.C. sales tax proposal.
The small Greene County town of Hookerton would see a revenue increase under a new N.C. sales tax proposal. RALEIGH NEWS & OBSERVER

It’s been curious to watch some N.C. Republicans champion a proposal to shift sales tax revenue from large counties to small and struggling rural areas. Republicans, after all, often get squirmy at the concept of redistributing wealth.

It’s equally curious to see Democrats’ lack of enthusiasm for the proposal, which N.C. Senate majority leader Harry Brown of Jacksonville says he’ll formally introduce soon. The plan would cost urban areas, which those Democrats represent, tens of millions in annual revenue.

In concept, the proposal should be one that progressives support. The theory behind it is simple: Rural counties don’t have the retail and commercial base to accumulate the revenue they need to fund critical needs like schools. The result is that largely urban counties like Mecklenburg and Wake can spend two to three times the dollars per student than struggling rural counties. That shows up in teacher pay and better facilities.

Brown proposes to change that with a formula that distributes revenue based on population. The plan is still thin on details, but it would double the sales tax revenue for some small counties.

In other words: Take money from the wealthy and give it to those who need it most. If you like that approach to federal income taxes, you shouldn’t mind the same for state sales taxes, right?

But like much tax reform under the Republican-led General Assembly, Brown’s proposal is not part of a larger, comprehensive revenue plan. It’s simply a haphazard bill that takes a whack at N.C.’s richer counties. And it’s far from the first.

Last year, lawmakers voted to repeal the Business Privilege Tax, which supplied millions in revenue for large cities like Charlotte. Critics overstated how cumbersome the tax was, and lawmakers and Gov. Pat McCrory said the lost revenue would be replaced. It wasn’t. This week, Charlotte officials say the missing revenue put the city in an $18.1 million hole. Even after cuts and wage freezes, the city has a $15.6 million shortfall.

North Carolina’s counties and cities, both big and small, need a more thoughtful approach. Brown’s sales tax plan is promising in that it eliminates a mishmash of old approaches that unfairly benefited some smaller counties over others. But simpler is not enough.

Lawmakers should study formulas – such as Michigan’s – that distribute sales tax revenue based on population but add weights for more complex forms of government that offer more services.

North Carolina also should, like some states, make sure rural areas have an appropriate level of skin in the game. If larger counties like Mecklenburg have to raise property taxes to compensate for lost revenue, smaller counties should be forced to maintain minimum tax levels instead of keeping their taxes low while collecting other counties’ money.

Most of all, a new sales tax plan should be thoughtful, not simply another small-county money grab in a vacuum. Yes, it should help counties that need money most. But it should recognize that larger counties are the engine that drive North Carolina, not merely the cash cows that fund it.