John Hood: Democrats would raise NC sales tax
RALEIGH — If Roy Cooper and North Carolina Democrats regain control of state government, where would they get the money to pay for the spending promises they are making?
If you were watching the Tuesday debate between Cooper and Gov. Pat McCrory, it’s a question that naturally arose as you saw Cooper propose higher expenditures in nearly every area of government. But it’s a question to which Cooper never supplied a clear answer, even after McCrory and moderator Chuck Todd pressed him repeatedly for one.
Why? Because if Cooper and other state Democrats regained power and implemented their promised budget expansions, they’d tax you to pay for it. Knowing that, you might not vote for them.
The attorney general has certainly criticized the cuts in personal and corporate income taxes enacted by McCrory and the Republican legislature. He has also criticized expansions of North Carolina’s sales-tax base to include retail services that were previously untaxed. But if he wins, Cooper won’t be rolling back all those tax cuts or repealing the sales-tax expansions.
I don’t simply mean that he won’t propose what a Republican legislature would surely refuse to do. Even if Democrats were somehow to gain enough legislative seats to have a major hand in writing next year’s budget, they still wouldn’t roll back all the income tax cuts, narrow the sales tax base, and then use the net proceeds to raise teacher pay and the like. If Cooper and his fellow Democrats want more revenue to spend, they’ll get a good amount of it by raising sales-tax rates on what is now a broader tax base.
I can say this with confidence because I have eyes and a memory that extends before 2010. I can see that right now, in the very community that houses the state capital, a Wake County Board of Commissioners entirely made up of Democrats has placed a massive sales-tax hike on the ballot to fund a massive increase in transit spending.
I can remember 2009, when then-Democratic Gov. Bev Perdue and the then-Democratic General Assembly relied mostly on a massive sales-tax increase to fund state programs in the midst of recession. I can also remember the 2000s, during which Democratic governors and legislatures repeatedly enacted higher sales taxes or authorized counties to enact them.
I can even remember 1991, when Roy Cooper was a legislator and voted for a Democratic plan to raise state taxes by the equivalent of nearly $1.1 billion in today’s currency. The package he voted for consisted of a sales-tax hike of $760 million, a corporate-tax hike of $150 million, and increases in the personal-income tax of $108 million, plus an array of excise-tax hikes.
In other words, while Cooper and his fellow Democrats did try to stick it to business owners, investors, and professionals, they quickly realized the practical limits of that strategy — just as the Democrats running Wake County today raised property taxes a bit but didn’t think they could get away with raising them more to fund their transit plan. So both groups resorted to sales taxes to do their heavy lifting.
Hikes in income and property taxes are perilous tools for politicians, because those taxes generate annual bills. Taxpayers can see how much they paid, and how much more they pay if the tax is raised. Because most income taxes are poorly designed — subjecting savings and investment to multiple layers of tax — they also tend to wreak the greatest damage on economic growth and job creation, thus motivating business associations, fiscal conservatives, and other groups to mobilize heavily against income-tax hikes.
Politically, sales-tax increases are the path of least resistance. If you want government to be larger and more expensive, you end up hiking sales taxes. Roy Cooper and other North Carolina Democrats have done this many times in the past. They will do it again if they get the chance.
John Hood is chairman of the John Locke Foundation and appears on the talk show “NC SPIN.” You can follow him @JohnHoodNC.