House Bill 2 was a mistake, and the N.C. legislature is now trying to figure out how to mitigate the damage.
Next up is House Bill 3. It would also be a mistake, and if it is approved, the legislature and taxpayers will eventually be figuring out how to mitigate its damage.
Under the bill, North Carolina income tax rates would be cut to a maximum of 5.5 percent, just over half of the current maximum. And that rate would be enshrined in the state Constitution, probably forever and always, if voters approve in November.
The rate beginning Jan. 1 is 5.49 percent, meaning income taxes would essentially never rise again.
Sounds pretty good, huh? It’s not.
The wording on the Nov. 8 ballot would say this: “For or Against: Constitutional amendments to provide for taxpayer protections that would establish and require yearly deposits in an Emergency Savings Reserve Fund in the State Treasury and reduce the maximum allowable income tax rate in North Carolina from ten percent (10%) to five and one-half percent (5.5%).”
It could just as easily say: “For or Against: Constitutional amendments handcuffing future legislators from deciding what’s best for the state and possibly preventing them from adequately investing in schools, universities, public safety and roads.”
The Senate passed the bill mostly along party lines Monday and Tuesday. Only two Republicans voted against it. One was Sen. Tamara Barringer, R-Wake.
She told the Observer editorial board that she is a champion for lower taxes.
“However,” she added, “I also believe that the setting of tax policy is the responsibility of the representatives elected by the people of North Carolina. Our representatives must be able to form tax policy to meet the needs of the people and our state as these needs change.”
She gets it. Her colleague, Sen. Bob Rucho, R-Mecklenburg, does not. Rucho defended the bill by saying voters should have a say in the taxes they pay. “We’re voting for something that will allow the people to make a decision.”
In fact, it does just the opposite. The people and their representatives will have no say on the income tax rate because Rucho and his colleagues knew best way back in 2016 what the tax rate should be in 2026 or 2036.
Besides neutering future legislators, the bill reduces revenue to the state. That will require hikes to other, less progressive, taxes, or cuts in spending, or both. Nobody likes “big government,” but they do like strong schools and safe highways.
The amendment also requires 2 percent of the general fund (currently about $450 million) be put into the rainy day fund for years, and makes it extremely difficult to ever spend that money.
“They are building into people’s mistrust of government without (having to be) the ones who have to make tough future spending decisions,” Kim Rueben, a state finance expert at the Urban Institute, told the Observer editorial board.
The House should adjourn without taking up this bill. If House leaders do manage to get 72 members to vote for it, voters should kill it in November.