Don’t try to make sense of tax plan

The Observer editorial board

The Republican plan for N.C. tax reform continues to come into focus in Raleigh.

What’s the approach for the party in power? Comb the budget, scour the tax code and look under the legislative cushions to find anything that can help pay for billions in tax cuts that favor the wealthy and big business.

Then cut some more.

In other words, it’s not very focused at all. But it is painful for a lot of North Carolinians.

Seniors are already feeling that hurt this tax season, thanks to lawmakers eliminating deductions for medical expenses. Parents felt it when they learned they lost a deduction for contributing to the state’s 529 college savings fund.

Small business owners haven’t been spared; Republicans repealed a 2011 tax break they gave small companies on their first $50,000 of income.

Next, perhaps, are the state’s non-profits. A bill in the Senate would trim sales tax refunds that help hospitals, churches, charities and other organizations. The benefit amounted to $285 million across the state in 2012-13, with 80 percent of the money going to hospitals.

We’re having difficulty working up much sympathy for the biggest N.C. hospitals, which have billions in reserve and sometimes don’t act much like non-profits. But smaller hospitals, along with many non-profits and charities, run on tight budgets while meeting important community needs. Losing the sales tax benefit hurts. Losing it for the sake of the wealthy and big business? That stings.

But that’s a recurring theme in Raleigh as Republicans try to fund the fiction that giving “job creators” more money is good for North Carolina. Doing so ignores history, which shows there’s no link between lowering state taxes and economic growth. That’s because businesses spend money when they can make money, not simply because the government gave them more of it.

But more money may be coming, anyway. Republicans are proposing another $1 billion in tax cuts – without specific corresponding revenue increases.

A note: This editorial board has long advocated lowering personal and corporate income tax rates in North Carolina, but those cuts need to be coupled with thoughtful tax reform that acknowledges the state no longer has an agriculture-driven economy. That means finding stable revenue sources, including broadening the sales tax base.

Lawmakers have taken small steps in that direction, but mostly they have haphazardly whacked tax rates while more haphazardly trying to pay for it.

It’s a product of Republicans in the House and Senate who can’t agree on a path to tax reform, along with a governor who is discovering far too late (and not coincidentally, with an election approaching) that the state can’t afford the path we’re on.

All of which isn’t a tax reform plan. It’s chaos.