Since the Reagan revolution, the organizing principle of Republican governance has boiled down to “lower taxes, better economy.” After Republicans took control of North Carolina in 2010, they hewed closely to this philosophy, flattening and (especially for those at the top) reducing the state’s income tax rate.
Now, with Governor McCrory locked in a pitched reelection battle and the GOP’s supermajority in the state House in question (thanks, Donald Trump!), Republicans are seeking to enshrine supply-side ideology into the state’s constitution once and for all. Last week, the Senate proposed a constitutional amendment that would cap the state’s income tax rate at 5.5 percent. If it clears the legislatureputting the amendment on the November ballot requires a three-fifths majority in both the House and Senateand if voters approve it in November, the state will have to look for other revenue sources or cut public services whenever it needs money.
Which, eventually, it will. When that happens, critics say, the poor and working class will pay the price.
That’s because the most obvious new revenue stream would be a sales tax increase or expansion, which hits lower-income families the hardest, as they spend a larger portion of their incomes on items and services than do wealthier people. Thus, a greater percentage of their incomes will go to sales taxes than rich people’s will. This is already happening: a 2015 Institute on Taxation and Economic Policy report found that the state’s bottom 60 percent of earners pay nearly twice as much of their incomes in taxes as the state’s top 1 percent. The amendment would only exacerbate that divide.
Not surprisingly, this plan has seen fierce opposition from Democrats, including Treasurer Janet Cowell. In a letter to the Senate Finance Committee, Cowell said the cap could negatively impact the state’s AAA bond rating and lesson “the reliability of the state’s revenue stream.” (N.C. Policy Watch reported that the committee denied Cowell the chance to speak before it passed the bill.)
The idea isn’t new. In 1992, Colorado voters passed an amendment known as the Taxpayer Bill of Rights, or TABOR, that required voter approval on all future tax increases. But after the post-9/11 recession, public services were so squeezed that, in 2005, Colorado voters suspended TABOR. (It went back into effect in 2010.)
Senator Jay Chaudhuri, D-Raleigh, who used to be Cowell’s general counsel, calls the Senate’s plan “TABOR-lite.”
“First, you never want to restrict our ability to raise revenue,” Chaudhuri says. “And secondly, a tax cap is a very short-term solution in trying to understand how we avoid volatility with state budget deficits.”
For an example of how this can go south, look no further than Louisiana. After former governor Bobby Jindal lowered taxes, declining oil prices led to a $3 billion budget shortfall, threatening to bankrupt the whole state. Kansas went down a similar road, slashing taxes on the wealthy and waiting on the trickle-down gods to deliver a roaring economy. Instead, earlier this year, the state faced a $228 million deficit.
North Carolina’s Senate will vote on the amendment June 25.
