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Friday, June 17, 2011
Extemporizing on temporary taxes, North Carolina edition
THE LAST TAX, THE LATEST TAX, the next proposed tax, is, as always, "just."  (By "just" I don't mean justified or righteous, I mean "mere" as in "just one cent.")
If a "one cent" increase in the North Carolina sales tax sounds like just a tad or smidgen, consider that it could have been just as accurately be called a 22% increase as it went from 4.5% to 5.5%.  Further, it is difficult to call "small" any tax that took into the state government coffers an estimated additional $800 million in one year.  Money that would otherwise go into the private sector, increasing revenue, profits and jobs.
On October 1, 2009, the North Carolina sales tax was increased "temporarily" to 5.75%, set in the same law to return to 4.75% on July 1, 2011.  (Notice that the extra 0.25% that was added along the way cost taxpayers "just" $200 million more a year.)
A "one cent" increase in the sales tax does sound innocuous, but just as each little straw adds little to the camel's burden, if they are always being added and never being removed, one day one little straw will break the back of the strongest camel.  Right now, just as it was in October 2009, North Carolina's economy is not a healthy camel, it is one sick puppy.  While there is no good time to raise taxes in terms of strengthening an economy, in the midst of recession is the worst possible time -- with one exception, which North Carolina has already tried.
I read the local newspapers for information.  Happily, thanks to letters to the editor, they sometimes include some.  
We owe a debt of gratitude to Charles Leonard of Smithfield (who wrote in to the News and Observer recently), for teaching us that of North Carolina's current 5.75% sales tax, 4.25% was enacted as various "temporary taxes."  (For you skeptics, Mr. Leonard's facts are confirmed in a report by Cindy Avrette of the Research Division of the North Carolina General Assembly made in November 2009.)
In 1931, in the midst of what became the Great Depression, the state enacted a temporary sales tax of 3.0% as "an emergency measure." In 1939, that tax was made permanent.
In 2001, the legislature enacted another temporary sales tax of 0.5%, which was extended, eventually cut to 0.25% and made permanent.
Finally, in 2009, the state imposed a third temporary sales tax of one percent.  This temporary tax is set to expire soon -- although the governor's budget had proposed extending three-quarters of it ("just" 0.75%), at what would have been a cost to the state's private economy of $600 million a year.
As Leonard points out, each of those cases has one thing in common: When the economy is down, the state raises taxes and generally does not reduce them when the economy improves. Instead, these "emergency" measures are used to fund ever-increasing levels of state spending.
As Leonard put it, "We have a spending addiction; it is time to face it."
Taxes proposed as being for brief and limited time periods to raise money for supposed emergencies end up being imposed for decades -- sometimes in perpetuity -- because we taxpayers are suckers for believing politicians' promises.
Of course the local news media have been quick to point out the hypocrisy of politicians who have broken their campaign promises (if they are Republican anyway). Governor Beverly Perdue, on the other hand, has excoriated the Republican majority in the legislature for keeping one of the promises they ran on -- not to raise taxes, which raises would include extending a temporary sales tax set in law to expire.
But at least she's consistently inconsistent. The News and Observer reported that in October 2008 then-candidate "Perdue declared 'I don’t believe you can raise taxes in an economy with folks struggling the way they are.'  Much was made about Perdue’s commitment to avoid tax hikes during a down economy, but the campaign promise didn’t survive the new Governor’s first year."
In June 2009, Perdue asked the legislature to come up with between $1 billion and $1.5 billion in new taxes, in the end approving more than $1 billion in new taxes when she signed North Carolina’s fiscal year 2009-2010 state budget. The one-cent increase in the state sales tax accounted for more than $800 million of the tax hike.
When asked why voters should trust that the taxes would be temporary, the N&O reported, Perdue said, "Because I'm the governor."
If voters decide that taxing our way out of recession really doesn’t work, she may not be able to say that for long.
Gary D. Gaddy has been a serial state government employee and has always been a faithful taxpayer.
A version of this story was published in the Chapel Hill Herald on Friday June 17, 2011.
Copyright  2011  Gary D. Gaddy

Authored by Gary G. Gaddy at 8:00 AM EDT
Updated: Thursday, June 23, 2011 9:58 PM EDT
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