The tax debate
Alternative tax plans and tax systems for North Carolina are likely to be vigorously debated this year. In comparing such plans, how should people keep score? N.C. State University outlines some factors to consider.
“Well … we really ask a lot of our tax system. We obviously want to fund government, but we don’t want to deter businesses from coming here and people from working more.
“On the other hand, we want it to be fair, and we want it to be able to ride out the business cycle in relatively good shape.
“It’s really hard to design any tax system that meets all of those factors. So I think we have to look at all those things. We have to look at any tax’s ability to fund what we want it to fund. We have to look at its ability and its impact on economic growth.
“We want to ask who’s going to pay the tax, and what percentage of their income they’re going to pay. And we’re going to also want to look at how stable the revenues from that tax are over time.
“Some taxes, for example, really take a dive during a recession. Others don’t. Now one factor that I think is very controversial and from which economists have tried to offer some advice on is whether lowering tax rates will actually give you a situation where you can have a lower tax rate yet still have as much income revenue from that tax. That’s sort of like having your cake and eating it, too. And the evidence that economists have thus far suggests that that’s very difficult to obtain. When you lower taxes, yes, you’re going to lose revenue because you’re taxing things at a lower rate. You may stimulate a little bit more economic growth, but usually not enough to recover all those revenues.”
Category: Economic Perspective