Imagine the ugly line on your paycheck that says “NC Income Tax” not showing up next month. Well it could happen.
Now that I have moved to North Carolina, and lived here for nearly a year, I’m finally starting to get a bit of a feel for the local politics. I’ve wanted to grow my understanding of them, but this is really the first interesting state issue since I’ve moved here. North Carolina’s “Amendment One,” which defined marriage as a union between one male and one female was passed before I moved to the state. A change to the state’s taxation strategy, as is being discussed, could save me a few thousand dollars per year, nothing to scoff at. This is why elections and local politics matter. Here’s a perfect example of a real, direct, immediate effect of November’s elections.
On the national scene, Bobby Jindal is leading the charge against state income tax, as he tries to do away with it in Louisiana. It’s already been done in a Texas, Florida, Nevada, Washington, Wyoming, South Dakota, and Alaska (Tennessee and New Hampshire only tax interest and dividends). Kansas and Nebraska are discussing such a move as well. Conceptually, it is thought that shifting taxation from income to consumption would spur the economy. From the article linked above:
…shifting the tax base toward consumption allows wage earners and investors to retain more of their “next dollar earned,” especially if they choose to save or invest it. With a progressive income tax, they argue, “next dollars” are hit harder and harder, thus discouraging productivity and investment.
Would such a shift in the tax burden have a negative effect on the poorest North Carolinians? Possibly, but it could work to benefit everyone across the economic spectrum. Eliminating the state income tax (7.75% at the highest marginal rate) would help encourage talented individuals to locate in North Carolina, while eliminating the corporate tax (6.9%) would create more jobs. Such a situation would help those who are currently poor find better work in a then stronger economy. Tax savings from no longer paying corporate income tax would provide additional resources for companies to invest in their employees. Finally, I would suggest that the federal government already employs a very progressive income tax, and the state’s responsibility should not be geared towards redistribution, but more so focused on growth. If any government is responsible for keeping the Gini Coefficient in check or focusing on taxing the highly successful, the federal government already accomplishes such, so the argument is weakened when it is applied again at the state level.
It would certainly need to be carefully implemented over the course of a few years (with special research on retailers near state borders), but it could be a real boon to the local economy and would likely give me a much appreciated tax break. What do you think? Could it really happen? I’d bet on a hybrid that lowers taxes, but leaves some state income tax intact.
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