A recent article in The Assembly newsletter asked, “Why do politicians love the sales tax?” The article discusses Mecklenburg County’s upcoming referendum on an additional 1-cent sales tax for transportation uses. The whole piece is worth your time. There are a couple of explicit and implicit messages in the use of sales tax that should give us pause.
- The sales tax is regressive, but that adds to its political appeal.
People and politicians like the sales tax because “everyone pays the sales tax.” In many localities, “everyone” includes a good portion of in-commuters and visitors. Fair enough. But —
The sales tax falls disproportionately on poorer people, in that poorer people by necessity spend a much larger share of their income on items subject to the sales tax than do more affluent people (The Assembly article discusses this assertion, if you’re skeptical). This is true even when you exempt food and other basics from the tax. But this regressive quality is part of the political appeal. The people most burdened are those with the least political power: those whose voices are the least likely to be raised and that are the most easily ignored.
I appreciate that those charged with figuring out how to get some money to make some improvements don’t operate in the world of the perfect. But two things can be true – those with the responsibility could conclude that the sales tax referendum is their best alternative under all the circumstances, and the sales tax affects poor people more.
- It’s not that our local governments want to rely so heavily on sales tax. They just have little choice.
We have long lamented that North Carolina local governments are hamstrung by State law from diversifying their revenue sources and making them more equitable (even admitting that to some extent equity is in the eye of the beholder). And of course this lamentation has been going on since long before we started writing about it. Our local governments have revenue power far more restricted than their peer localities across the country, and these restrictions limit the efficient provision of public goods and services to the detriment to the State, the locality and the residents.
It would be better if Mecklenburg County had a range of effective options to fund not only transit, but also its operations more generally. The General Assembly will not give local governments that type of power. Instead, we are left with a huge economic engine having to negotiate, not for a 1-cent sales tax increase, but for permission to have a referendum on a sales tax increase.
And when local governments have been given revenue-generating power, it has been taken away or limited.
*Some counties over time have been given the authority to levy impact fees related to school construction. One county had that power stripped away, through a local bill sponsored by a representative who didn’t even represent any part of that county.
*Even when you look at system development fees for utility systems, in certain cases the local government has to give a developer a credit based on the value of revenues to be derived from the operation of utilities within the new development. But no matter how the analysis comes out, that credit has to be at least 25%.
*Why should occupancy taxes be restricted to tourism-related purposes?
Even in the case of the Mecklenburg sales tax, the money won’t flow to the County and localities as a sales tax normally would. Instead, decisions on how to spend the money will be made by a committee that will include members appointed on the recommendation of General Assembly leadership.
It shouldn’t be this way. There are plenty of revenue options that makes sense for local governments that are used across the country and that are not unfair, over burdensome, or somehow un-American. We should empower North Carolina’s counties, cities and towns to better manage their own affairs through increased local control over revenue options. But it seems we are unable even to have that conversation.
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