To Prevent Major Tax Increases, North Carolina Voters Should Lower the “Max Tax” Cap

By most metrics North Carolina is a taxpayer-friendly state. The recent cuts to individual and business tax rates have attracted investment, jobs, and people to the Tar Heel State. But as we’ve seen on numerous occasions in other states, just because taxes are low today doesn’t mean they will stay that way in the future, as politicians often try to place new burdens on taxpayers to finance expensive projects. Thankfully, this November taxpayers will have the opportunity to approve an important taxpayer protection amendment to the state constitution. And given the desire of Governor Cooper to balloon state spending, inoculating taxpayers against future painful tax hikes is the right thing to do.

The state constitution in its current form states that the maximum tax rate for individual and business cannot rise beyond 10 percent, but the proposed ballot measure would reduce the limit to 7 percent. Should this new ceiling be adopted, it would further cement North Carolina’s commitment to a competitive tax system that prioritizes the interests of taxpayers.

Taxpayers should know that the individual and business tax rates, levied at 5.499 and 3 percent, respectively, are well below the proposed cap. So while nothing would change immediately, it is nonetheless a shield against future attempts by politicians to increase taxes from where they are today.

Such a tool is critical, given that Governor Cooper has not proven himself to be a friend to taxpayers.  In the governor’s last budget proposal, he called for numerous tax increases and spending beyond the state’s means. When the legislature passed a fiscally responsible budget, which included provisions to once again drop tax rates, he vetoed it. Thankfully the legislature overrode his veto, and taxpayers and businesses will see a slightly lower tax burden starting January of 2019. But if more tax-and-spend politicians get elected to Raleigh in the near future, it could reverse the progress the state has made.  

Embracing a maximum rate of 7 percent would be a significant development, but voters should view this as merely a step in the right direction. In fact, during its last session the legislature was close to passing language for a cap of 5.5 percent. Though the language sailed through the upper chamber, it faced hurdles in the House of Representatives, which led to the compromise rate 7 percent rate that appears on the ballot.

The legislature missed an opportunity to deliver taxpayers another meaningful safeguard. But just because the amendment does not go far enough, does not mean it is not worth supporting. It is important that the amendment in its current form be adopted, and then have taxpayers put pressure on their elected officials to support a lower limit in the next session.

Opponents of the tax cap are concerned that limiting how high taxes can be raised will restrict the ability for lawmakers to tackle a future economic crisis. It’s a good talking point, but their worries are misguided. In the event of another event as severe as the Great Recession, the very last thing lawmakers should do is raise taxes to fund Keynesian policies. As we’ve seen time and again, raising taxes is likely to exacerbate an economic crisis and leave everyone worse off.

Ensuring North Carolina has a low, fair, and competitive tax system will help it weather the next economic downturn, not cause or worsen it.

And as Americans across the country have fled high-tax states for those that have a more favorable tax structure, having taxpayer guardrails could improve North Carolina’s reputation to entice prospective residents and businesses to relocate. Further, voters in neighboring Georgia approved a tax rate cap back in 2014, at a rate of 6 percent. Though a 7 percent rate is slightly higher than Georgia’s, it’s possible we could see these states actively working to reduce tax rates and the tax cap to compete against each other for new residents and businesses.

An argument can be made that no state has enacted more recent reforms to their tax code as North Carolina. While approving this constitutional amendment will not impact tax rates today, it could help prevent a major tax increase in the future. Even in a taxpayer-friendly state such as this one, no one can predict what the political landscape will look like in the coming years, which is why this taxpayer protection amendment is so vital.