#ncga: Instead of tax hikes & corporate welfare, why not tax reform?

shakeProponents of state ”economic incentives” and the so-called “gas tax cut” claim that we need to enact all of this in order to stay competitive with our neighbors.  The really smart folks in Raleigh point to all of these economic development victories in South Carolina, Tennessee, and Virginia as evidence that SOMETHING needs to be done.

We’ve got the highest gas tax in the southeastern United States, and one of the highest rates in the country.  We’re told that we can’t cut the gas tax rate because the state NEEDS the money to pay for road construction and so many other important programs.   That argument was always puzzling.  Gas has been so much cheaper in Virginia and South Carolina, and they seem to be doing just fine in paying for their roads and schools.  They get the same kind of tourism crowds that we do here in North Carolina.  How are they doing it?

The smart folks in Raleigh are claiming that states like South Carolina and Virginia keep their gas tax low and rely heavily on local sources of revenue.  Well, The Tax Foundation — a non-partisan economic policy think tank — has put together an interesting study on the combined local / state tax burden for all 50 states. Let’s take a look at their findings — based on FY 2011 data but compiled in mid-2014 — to see how well the argument from Raleigh holds up.

gaspricesThe states were ranked from 1 to 50, with 1 being the heaviest tax burden and 50 representing the lightest tax burden.  (In other words, the closer you rank to 50 — the better.)   In this particular study, North Carolina ranked 17, while South Carolina came in at 42.  Virginia ranked 30th, while Tennessee came in at 45th.  In other words, Virginia and Tennessee ranked among the best and most competitive — the top twenty percent — in terms of combined local and state tax burden.  Tennessee was in the top 60 percent in terms of competitiveness, while North Carolina was in the bottom 20 percent of all states in terms of tax competitiveness.

North Carolina residents have shouldered one of the heaviest combined local-state tax burdens in the region.  Yet, the state’s three neighbors seem to be doing just fine economically while maintaining a significantly lower overall tax burden.

In FY 2014, Tennessee barely edged out North Carolina in terms of overall business tax climate.  North Carolina’s overall climate was significantly better than that  of South Carolina or Virginia.  South Carolina and Virginia had more competitive property tax environments than Npaytaxorth Carolina.  North Carolina was much better than its neighbors for unemployment insurance.  North Carolina’s sales tax (i.e., GAS) burden was 33rd, while South Carolina came in at 18th and Virginia was at 6th.  In terms of individual income tax burden, Tennessee ranked 8th out of 50 while North Carolina came in at 15th.   For corporate taxes, Virginia’s overall tax burden ranked 6th, while South Carolina came in at 13th and Tennesee came in at 15th.  (North Carolina came in at 25th on corporate tax burden.)

After examining this data, it seems clear to me that North Carolina needs to set aside all of these discussions about raising taxes and handing out more corporate welfare and focus like a laser beam on tax reform.  Our only real bright spot in head-to-head matchups with our neighbors appears to be unemployment insurance.  

I remember reading recently about one industry that passed up North Carolina for another.  The company told a drive by reporter that they took a pass on North Carolina because of its convoluted business tax system.  Want to get back in the game against our neighbors?  Focus more on restraining government spending and letting people keep more of their money to invest as they see fit, and less on redistribution via bureaucracy.