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November 2002
Are we becoming another Taxachusetts?
By John Paul Galles

    Quietly and subtly, in the midst of pre-election rhetoric about balancing budgets, social security, prescription drugs and health care reform, our county commissioners voted to raise sales taxes in Mecklenburg County by another one-half cent to 7.5% starting January 1, 2003. To the benefit of area businesses and consumers, they postponed the increase until after Christmas so as to not discourage retail sales over the holidays.

     Viewed in conjunction with increasing corporate restructurings and massive industry layoffs, business owners are apt to be concerned about further tax increases at a time when the economy is struggling to recover. Is North Carolina becoming the “Taxachusetts” of the Southeast?

      In comparing North Carolina rates of taxation by type to those of other southeastern states, it is important to keep in mind that rates are imposed on different goods and services and applied with varying exemptions and credits among the states. However, as indicated in Chart I, North Carolina does appear to have literally the highest rates of taxation in the Southeast.

    However, if we then look at the different sources states have chosen to fund their state and local priorities, Chart II indicates just how wide a disparity there is between the sources of tax collections, suggesting that mere rate analysis may be too simplistic.

     Then, when we extrapolate the basic tax rates relative to the sources of funding to compare the effective tax burdens imposed by the states (Chart 3), it no longer appears that North Carolina is out of sync. After stripping out federal taxes and comparing the combined tax burdens of states and localities, southeastern states are ranked below average among the fifty states.

    Certainly, tax rates affect different people and different entities in a multitude of ways. And nobody likes to pay taxes. However, when it comes to calling North Carolina a high tax state, it does not seem that it is so disproportionate after all. In point of fact, Maine had the highest tax burden at 12.8% and Alaska had the lowest tax burden at 6.3%. Massachusetts came in at #39 for its9.5% tax burden – not quite as high as it had been in its “Taxachusetts” days. The national average was 10.2%, so while we may complain about taxes and want to reexamine our tax burden and how we finance government, we are about average. With the local sales tax increase, we may even settle in at the average rate. Rats!

John Paul Galles is the publisher of Greater Charlotte Biz.
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