Commentary: Tax breaks erode N.C. revenue
By Chris Fitzsimon
N.C. Policy Watch
Most of the public debate about how to address the state’s $3.7 billion budget shortfall has focused on two competing claims. The new Republican leadership says that they can balance the budget with cuts alone without doing irreparable harm to education and human services.
A broad coalition of educators, health care providers and advocates understandably believe that’s impossible and that cuts of that magnitude will devastate public education and cut off services to the most vulnerable people in the state.
They want new revenue from new taxes or at least a continuation of the tax increases passed in 2009 that are set to expire June 30. Keeping the tax rates the same makes sense, but it will only provide $1.4 billion in revenue, less than half of the shortfall.
There’s a third point of view to consider, that tax fairness can help this year — and that doesn’t refer to the overdue tax reform that legislative leaders seem unwilling to consider this session.
Lawmakers and advocates alike should take a look at the $5.8 billion in “tax expenditures” that North Carolina makes every year.
Legislators so determined to scrutinize every dollar the state spends ought to spend as much time examining every dollar the state gives away to specific industries and multinational companies.
The Department of Revenue issues a report every biennium about the tax breaks, loopholes and preferential treatment in the tax code. The report defines tax expenditure straightforwardly.
“A tax expenditure is defined as an exemption, exclusion, deduction, allowance, credit, refund, preferential tax rate or other device that reduces the amount of tax revenue which otherwise would be collected.”
The report identifies sales tax exemptions for everything from seeds and medication used in farming to the electricity used by manufacturers, the same electricity that everybody else pays taxes on.
There’s a tax break for tobacco distributors if they file their reports and cigarette tax collections with the state on time. Alcohol distributors receive a similar break for timely collections and reporting. There’s no break for citizens who file their taxes before the deadline.
There are loopholes for the logging industry, poultry farms and a break for tobacco companies that export cigarettes. The list goes on and on.
Some of the exemptions cost the state a few million dollars. Others cost tens or even hundreds of millions. That’s a lot of teachers and a lot of services to people with disabilities.
One of the most egregious giveaways that didn’t even make the report is the practice of allowing multistate corporations to shift the profits they make in North Carolina to other states to avoid paying the state taxes they owe.
That not only robs the state treasury of revenue, it is patently unfair to North Carolina companies who compete with the multistate corporations but pay higher taxes because they have no place to hide their profits.
It’s time to expand all the talk about the pain and sacrifice that the state budget crisis will impose and require to include more than state employees and people who rely on state services. The special interests that have been reaping the benefits from all the tax breaks and loopholes should be called on to help with the budget crisis too by paying their fair share of taxes for a change.
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Chris Fitzsimon is executive director of N.C. Policy Watch.