Principles for Job Creation

December 11th, 2009 by

Proposed Principles for Job Creation through Tax and Spending Reform

Raleigh – The Interim Joint Finance Committee convenes today to continue its consideration of proposals to reform North Carolina’s tax structure. Republican members of the House and Senate Finance Committees released their outline for tax reform proposals to provide renewed vitality to job creation.

The concept of substantially reducing personal and corporate income tax rates and sales tax rates is good. If that reduction is accomplished by broadening the base in a revenue neutral way, that is the right way to go. But it raises four major issues.

Neither the public nor Republicans trust Democrats to keep the rates low. There must be a mechanism to ensure this. Two possibilities:

a) A Constitutional amendment limiting the state sales tax rate at 3% + and the county sales tax rate to an equivalent. The Constitution currently specifies a 10% limit on tax on net income.

b) A Statute that sets out as a Rule of Order, applicable to each House, that an increase in the rate must be separately passed by both Houses and signed by the Governor, and cannot be combined with any other matter unless by a 2/3 vote of each House.

The base widening must delete the exemptions and refunds which are in current law for political reasons/not because of true economic considerations.

Tax Reform must include spending reform that has passed the House in the past – zero based budgeting, and must include:

a) Procedural reforms must allow “off budget” sources of revenue to be considered as part of the budget process.

b) The minority party is entitled to proportionate representation on the Budget Conference Committee.

c) The Governor’s proposed budget must only include the amount of revenue collected in the prior year (with a recession exception).

In determining what is “revenue neutral” the temporary taxes imposed in 2009 shall be treated as if they had expired.

We should also look at other reforms that take advantage on behalf of our citizens as federal taxpayers of federal deductibility issues. This could save our citizens $1 billion a year in federal income taxes.