Americans for Tax Reform today announced opposition to the NC Senate’s “21st Century Tax Rate Reduction and Modernization Plan”. While some positive reforms are found in this proposal, it ultimately results in a $1.7 billion tax hike on North Carolinians over the next two years. This plan would significantly increases the income tax on most individuals and families, expand the sales tax, hike tobacco and alcohol taxes and eliminate numerous tax credits and deductions. It is estimated that when fully phased in, this plan will hike state and local taxes by over $850 million every year, exceeding the $500 million in unspecified tax hikes called for in the recent budget.
 
Under the Senate’s plan, the method used to calculate income tax rates is altered to result in substantially higher taxes on almost all North Carolina residents. The plan will extend the state sales tax to include digital products, warranties, movies, recreation, real property, storage & moving, building & repairs, web based and other information services, while simultaneously limiting the refund for nonprofit organizations such as hospitals. The cigarette tax would increase by 15 cents a pack, and North Carolina would collect an additional $44 million a year in increased alcohol taxes. Other proposed tax hikes include applying the franchise tax to all limited liability businesses and local tax hikes.
 
“As working North Carolina families are struggling just to make ends meet, their senators want to take even more of their money to make up for chronic government overspending. There is one thing economists of all political stripes can agree upon: the last thing you want to do in a recession is raise taxes, yet the North Carolina Senate wants to do just that – to the tune of a whopping $850 million a year” said Grover Norquist, President of Americans for Tax Reform.  “Everyone will be worse off after these tax hikes. Income tax hikes will hit families already struggling to put food on the table. Increasing the sales tax base will force businesses to shed jobs, or even close their doors. Increasing the alcohol tax, and taxing ‘recreation’ will decimate the hospitality sector. Furthermore, raising the cigarette tax, which has been proven failure when it comes to raising revenue, targets the state’s poorest residents. Everyone will suffer to make up for the state government’s profligate ways.”
 
North Carolina currently ranks a dismal 39th in Business Tax Climate nationally. According to the Center for Fiscal Accountability, North Carolina taxpayers already work 191 days – more than half the year – just to pay off the cost of government. Under this proposal, every individual earning over $60,000, and every family earning over $70,000 will see a sharp rise in their income tax: individuals earning $100,000 can expect to pay a an additional 10% in state income tax alone. When fully phased in, this plan will cost every North Carolina household additional $250 a year in taxes.
 

“By calling this blatant cash grab a ‘tax rate reduction and modernization plan’ the North Carolina Senate is channeling 1984 to the extreme: this is an example of Orwellian doublespeak at its finest” added Mr. Norquist. “North Carolina must cure itself of its addiction to overspending and stimulate the economy by reducing the burden of government. This plan does just the opposite: it is bad for families, bad for employers, and bad for the Old North State.”

Below is a chart put together by the Civitas Institute of Raleigh that details the effect of the Senate’s tax increase over the next two years:

SENATE TAX PROPOSAL
IMPACT ON TAXPAYERS (MILLIONS $)

  State
FY 2010-11
State
FY 2011-12
Local
FY 2010-11
Local
FY 2011-12
Income $264.70 $343.50    
Sales $66.10 $83.60 $244.30 $261.30
Business* $105.50 ($5.40) $41.50 $45.60
"Sin" Taxes $123.20 $123.50    
IRC Conform** ($4.30) ($2.70)    
Total $555.20 $542.50 $285.80 $306.90

*Corporate tax rate to be phased down to 5.8% then 4.5% over two years
**Changes to conform to federal internal revenue code changes