Suddenly, the sales tax is popular.
Popular with tax reformers, that is. Last week in the General Assembly, Senate leaders proposed eliminating the corporate and personal income taxes that bring in more than half of the state budget — $12 billion of $20 billion.
Good news, right?
That depends. Yes, it’s good news if you’re a high-income earner. But if your income is modest and your expenses are high, this shift could be bad news. Instead of taxing income, lawmakers want to tax out-go, and that could hurt.
One of the ways proposed to offset the loss of income tax revenue is a hefty increase in the combined state and local sales tax, raising it from 6.75 to 8.05 percent on most sales. But there’s more. Under the concept being proposed by state Sen. Bob Rucho, the state would give up its long-held belief that food for home consumption should not be taxed at the same level as other goods since poor people spend a great deal of their income on this necessity. Sales tax on groceries would jump from 2 percent to 8 percent. And sales tax would begin to apply to many services that have long been exempt, such as lottery tickets, haircuts, dentist visits, housekeeping and lawyers’ fees.
Those changes are being discussed on the state level. The sales tax is so popular, even county officials are warming up to it.
At least two members of the Rowan County Board of Commissioners — Jon Barber and Craig Pierce — have suggested increasing the local sales tax to offset a decrease in the property tax. Pierce says only 38 to 42 percent of county residents pay property tax, which he says is unfair. If you don’t own property, you don’t pay any property tax. But everyone buys food, clothing and other necessities and therefore pays sales tax.
So begins what will be a long and sometimes contentious look at how state and local government raise funds to pay teachers, operate libraries, build roads, protect the environment and carry out their countless other duties. A tax structure set up eons ago when the state had a robust manufacturing sector is inadequate in a service economy. Republicans and Democrats have been saying that for years. The sales tax is applied too narrowly; the income tax is too high.
Voters who have been taught to chant “no new taxes” even in their sleep will have a hard time waking up to higher sales taxes applied to more goods and services. Leaders must demonstrate that this is a better and fairer way to fund government, not just because it’s popular, but because it’s necessary.