North Carolina used to have a tax on wealth. Called the intangibles tax, it was akin to a property tax, only instead of being on the real estate you owned, it was on your stocks, bonds and other financial assets. Apparently, it was named by somebody who wasn’t wealthy and considered a second house more “tangible” than a second million.
Nothing in my experience demonstrated more clearly who’s making the decisions for “we, the people” of North Carolina than what happened to the intangibles tax. It’s not just that the General Assembly repealed it in the mid-’90s. It’s what happened after that.
Rich people, you see, had gone to court over the thing, claiming that it somehow violated the commerce clause of the U.S. Constitution to tax their stuff. It was a 25-cent tax per $100, which was only $25 on your $10,000 CD but came to $2,500 on your $1 million holding, $25,000 on your $10 million and so on. You can see where that would annoy someone of means.
It was generating more than $100 million a year for public purposes, however.
In 1996, the U.S. Supreme Court said it was fine to tax wealth, but not the way North Carolina was doing it, because our intangibles tax exempted the securities of in-state companies (and those out-of-state firms to the extent that their earnings came from North Carolina). The exemptions did violate the commerce clause, the court said, by discriminating–even if just a little–against interstate commerce.
Whereupon it handed the case back to the N.C. Supreme Court to decide on the remedy. The following year, the N.C. court gave Gov. Jim Hunt and the General Assembly a choice: Either return ALL the money the state collected from the intangibles tax between 1990 (when the rich people filed their case) and 1995; or else, give a little break to out-of-state companies (or levy a little tax on in-state firms) to make up for the discrimination.
Not a hard choice. Giving back ALL the money–mostly to rich people, remember–would cost the state $400 million. A little compensatory tax might have cost N.C. firms $20 million? $30 million? The N.C. court was notably vague about how much was required, nor did the U.S. Supreme Court seem to care, since the not-that-offensive tax had already been repealed.
If you’ve paid any attention to North Carolina politics since the Indy started up 20 years ago, you know the rest. Hunt said the state should give back all the money–cue the cameras–and the General Assembly quickly complied.
In the General Assembly, there was not one dissenting vote.
Well, those were the halcyon days when the economy was flush and Democrats and Republicans raced to cut taxes faster. Together, they slashed $1.4 billion a year from state revenues, mainly from upper-income folks and corporations.
That’s money that our contemporary legislators, some of them, at least, must wish they were still getting as they contemplate slashing mental health funds, raising college tuitions, and–here’s something the Democrats really don’t want to do, since the construction industry is their main source of campaign cash–cuting road-building work.
There was a time not so long ago when the Democratic party dominated national politics by standing up for, in FDR’s phrasing, “the forgotten man at the bottom of the economic pyramid.” For 50 years, from the Great Depression to the election of Ronald Reagan in 1980, Democrats won by doing two things: Taxing the rich, and spending the money on programs to help everybody else.
Top marginal income tax rates as high as 90 percent weren’t designed to collect nine-tenths of anybody’s salary, no matter how rich. Rather, they told the rich that there was some number–$2 million a year? $5 million a year?–beyond which a salary ought not to go. Invest the excess in your company, Democrats said, or else pay it to the minions. Otherwise, we’ll just take it on their behalf.
Today, the tax dollar not collected from the rich is reckoned to do more good, trickling down from their vacation homes, than if it paid for another teacher in the inner city, or another doctor to treat the mentally ill, or on prescription drugs for a needy senior citizen.
Or even–did you catch this latest Bush budget cut?–for veterans benefits.
Meanwhile, the top federal tax rate has been reduced to less than 40 percent, and notwithstanding the national recession and huge war costs, President Bush and your Republican Congress are keen to cut it some more. And the Democrats? They want to cut it too, just a little less.
And in North Carolina this year, the debate in the General Assembly is between whacking away at social programs and–maybe, just maybe–taxing cigarette smokers. Tax the rich? The Republicans won’t hear of that. But neither will the Democrats.
Bob Geary is a staff writer for The Independent.