Smart policy on taxes? It’s just a mirage

The Observer editorial board

Sen. Bob Rucho, R-Mecklenburg, is a co-sponsor of Senate Bill 607, a last-minute budget wrinkle.
Sen. Bob Rucho, R-Mecklenburg, is a co-sponsor of Senate Bill 607, a last-minute budget wrinkle. ssharpe@newsobserver.com

Elections sometimes feature an “October Surprise” – a last-minute bombshell that changes the Election Day landscape.

Republican N.C. senators on Thursday unleashed their “August Surprise” – a stink bomb dropped at the last minute of state budget talks.

The bill that would become the “Taxpayer Bill of Rights,” sponsored by Mecklenburg’s Bob Rucho and others, has been sitting untouched in the Senate Rules Committee since March 30. On Thursday, Senate Bill 607 suddenly came to life and was passed out of the Senate Finance Committee. The full Senate is expected to debate it this week.

If the Senate passes it, the House should derail it, as so many other states have done. This Koch-Brothers-backed effort would artificially restrain the state from responding to crises and from making decisions about spending on education, health care and other areas. It would also probably lead to higher sales taxes and could threaten the state’s credit rating.

The bill includes three provisions:

▪ It cuts the maximum income tax rate in half, putting a limit of 5 percent on both corporate and personal income taxes;

▪ It locks in spending limits by forbidding an increase in the state budget beyond inflation and population growth, except by two-thirds vote of both houses of the legislature;

▪ It creates a Reserve Fund that can be tapped only by a two-thirds vote of both houses.

All three provisions are proposed constitutional amendments that would have to be approved by voters. Rucho and the other sponsors cleverly scheduled that vote for March 15, 2016. That’s the new date for North Carolina’s presidential primary. Given how that race is shaping up, it’s likely that Republican turnout will be stronger than Democratic turnout that day, boosting the chances of cementing these tax and spending cuts into the Constitution.

The personal income tax currently tops out at 5.75 percent, already down in recent years from 7.75 percent. This bill would cut it to no more than 5 percent, meaning top-bracket taxpayers will have received an income tax cut of more than 35 percent. The new cut is projected to reduce state revenue by $1.7 billion to $2 billion per year.

To make up for that, expect higher sales taxes, which are regressive, and further hikes in city and county taxes.

Colorado is the only state with a Taxpayer Bill of Rights. It passed there in 1992. In 2005, Colorado voters, disgusted by what the law had done to state investments in education and health care, loosened its provisions so the state was not limited to the inflation-plus-population formula over the previous year’s spending.

The idea of blocking spendthrift politicians is tantalizing. No doubt there is wasteful spending in the state’s $21 billion budget.

But North Carolina would surely have regrets similar to Colorado’s before long. The bill does nothing to ensure money is spent wisely; it just prevents state leaders from adapting to economic conditions. When the next recession comes along and forces cuts, the state would be blocked from returning to old levels once the economy roars back.

SB 607 is a gimmick. Legislators should let it die.