Extra Sales Tax for Counties

December 27th, 2005 by

Updated: June 2006

Hon. Tony Gurley
, Chair and Members of the Wake County Commissioners
Hon. Patti Head, Chair and Members of the Wake County Board of Education

Re: Sales Tax for School Construction

Gentlemen and Ladies:

Let me explain why I oppose the extra ½ cent sales tax for school construction. The bill for that purpose passed the House (Wake County’s inclusion was opposed by Republicans) and is pending in the Senate for the Short Session. It is unclear whether the lottery’s passage will stop that particular bill.

First, a sales tax is regressive. I do not know any policy reason why we would want to build schools for children with a regressive tax. It is not a user fee in any sense. And North Carolina already has a super high sales tax rate.

Second, a sales tax is highly inefficient. When choosing what taxes are required in order to fund a given level of expenditures, tax efficiency must be considered. For most of the income taxes paid by North Carolina taxpayers the sales tax is non-deductible against federal income tax. Most taxes cost about 1% to collect. Because of its non-deductibility, from the point-of-view of the taxpayer the sales tax has a 20% cost of collection because 15% extra will go to Washington, DC and about 5% to state government. This means that the counties that adopt the ½ cent sales tax will be subsidizing the other states in the nation and will be subsidizing, to a lesser extent, the North Carolina counties that do not adopt it. It is just bad policy, at least until Congress changes the rules on deductibility.

I was not elected to determine the overall revenues collected for Wake County – you were. But I was elected to have my say about the structure of taxation. With North Carolina’s extremely high rate of sales tax I just am not going to agree to increase it.

I also attach a copy of an article by Dr. Charles Liner (from the Spring 2000 issue of Popular Government and entitled “North Carolina’s Most Regressive Taxes”) who explains the regressive nature of several other ideas for “creative taxation” that make little policy sense but are popular with the press..

With regards, I am

Sincerely yours,

Representative Paul Stam

The writer represents Southern Wake County in the North Carolina House of Representatives.