North Carolina sales and services tax — a reaction

Here is a comment emailed from a North Carolina tax lawyer:

One analysis puts the [required sales tax] rate between 10-11%.  The more seepage they have in the base, the higher the rate would have to go. Services are easier to obtain for cash (house cleaning, yard work, house painting, etc.) and some can be more easily acquired in cross border activities or electronically where compliance is sketchy.

Moreover some services such as mortgage interest, hospital bills and school tuition become too toxic for the tax to touch for its proponents. In addition some services are obtained via the tax route (e,g., Primary and secondary education as well as higher ed at state schools, Medicare, Medicaid, etc) and they cannot be taxed. So the base shrinks still again.

. . .

I think that 50% of personal income may be optimistic as an estimate. Consider that real property taxes, FICA and federal income taxes are out of the personal income base as are other tax-excluded elements such as pension contributions. They probably would run up close to 25% of the wage base for starters. You would also have to exclude savings, which currently run around 5%. Then on top of all that you would have to add all the other seepage issues and politically excluded items such as mortgage payments (excluding property taxes so as to avoid double counting).

Another factor to be considered is that a high tax like that will likely deter folks from other states spending money in NC on things such as vacations, services and conventions. That would be bad for a lot of businesses and owners of beach property who currently rent it out when not used for personal purposes.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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