The North Carolina Senate GOP recently revealed a plan for far-reaching tax reform. This major reform will make several changes by lowering marginal income tax rates on both individuals and corporations, as well as begin to shift the burden of taxation to consumption rather than income. These changes would be financed by a reduction in spending (long overdue) and an increase of taxes on services that are currently exempted.
This is the type of reform that is needed in a state with persistently higher unemployment than seen nationally, and a tax system that penalizes earning.
Moving a greater share of the tax burden to consumption is more efficient and more “fair” by any measure. Critics argue that consumption taxes hurt those with lower income, yet this belief is based only on the current antiquated tax code. Income taxes penalize all earners, and these taxes create a disincentive to earn (and for small business owners there is a disincentive in show a profit). A system that forces any earner to hide and shelter their income is backwards. In fact, consumption taxes are much more efficient. They more you consume, the more tax you pay. Thus, those who earn more income (and who also spend more of that income) will pay more in taxes.
Economists have argued for decades that consumption tax systems are more efficient because they push the individual tax burden into the future. Younger tax payers will have more incentive to earn today, and then they will consume more in the future (especially after retirement).
Governor McCrory and the NC legislature should move forward on this reform and establish North Carolina as a national leader in tax policy change.