Friday, March 16, 2007

Tax Reform Committee Continues Work

The State and Local Fiscal Modernization Study Commission, which has been meeting during the last several months, continues to look at ways to update and reform our state's tax code. The commission began their work with three major objectives - 1) to recommend ways to update and reform our state's tax code that would be revenue neutral, so there would be no overall increases in taxes; 2) foster a stronger partnership between the state and our 100 counties, which currently pay for different services and programs; and 3) find ways to afford to be able to invest in needed infrastructure, which will help our state and local economies grow.

Many legislators, local elected officials, and various groups across the state have highlighted the need to reform and update our state's tax system. North Carolina's tax code, which has not seen a comprehensive update since the 1930s, has been based on an economy that centered on farming, textile, and manufacturing jobs, which needless to say, have reduced dramatically in recent years. Today's economy, however, relies more on services and Internet sales.

On Monday, the committee heard recommendations from its five subcommittees. The suggestions included updating the sales and income tax base while lowering the overall rates and creating a "tax menu" or more options for local governments to use when paying for roads, school construction, and Medicaid.

One subcommittee recommended changes to the sales tax that consumers pay on tangible goods to include services. In exchange, the overall tax rate - currently at 6.75 percent in nearly 100 counties - probably would be reduced by more than half. Another subcommittee suggested lowering the corporate income tax rate from the current rate of 6.9 percent to about 5.5 percent and the top marginal income tax bracket from the current 8 percent to 6 percent.

Responding to complaints and suggestions from cities and counties, another subcommittee suggested giving local governments the authority to assess several optional taxes or fees on real estate transfers, new subdivisions, or automobiles. The money would help supplement property and the local share of sales taxes, particularly in areas where elected officials have raised the rates several times in recent years to pay for new roads, school construction, and their local share of Medicaid. Similar local "tax menus" have failed to gain support in the General Assembly.

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