Robesonian

Putting a cloak on tax increase

There’s no Walter Mondale on the ballot this year in North Carolina.

Voters must look beyond candidates’ statements and official policy positions to find those who emulate the former vice president. This is especially true when considering Mondale’s views about raising taxes. But those willing to look for an aspiring Mondale will find some helpful clues.

Accepting the Democratic presidential nomination in 1984, Mondale made headlines for his candor. “Mr. Reagan will raise taxes, and so will I,” Mondale said in his nationally televised Democratic convention speech. “He won’t tell you. I just did.”

Incumbent Republican Ronald Reagan went on to trounce Mondale, winning 59 percent of the popular vote and 525 of 538 electoral votes. Only Mondale’s home state of Minnesota and the District of Columbia favored the losing candidate’s promise of higher taxes.

Since that election, a generation of Democratic politicians learned to employ a more circumspect approach to the tax issue.

In North Carolina, that approach aligns well with Pearce’s Law. In 2008 longtime Democratic strategist Gary Pearce wrote in the “Talking About Politics” blog: “Liberals (or progressives or whatever you prefer) have to understand that your candidates don’t have the luxury of the right-wingers: They can’t always say exactly what they believe — and still get elected.”

Vermont Sen. Bernie Sanders deviated from Pearce’s prescription during his failed bid for the Democratic presidential nomination in 2016. But most other Democrats still avoid promises of higher tax rates while campaigning for votes.

Avoiding Mondale’s and Sanders’ direct approach, some Democrats signal their support for higher taxes in other ways. Let’s address two.

First, there’s the argument popularized this year by Gov. Roy Cooper about “freezing” the state’s current personal and corporate income tax rates. The budget Cooper put forward this year would have reversed tax cuts scheduled to take effect in 2019. The Republican-led legislature rejected Cooper’s plan.

Cooper and his supporters sold this idea as preserving the status quo. But maintaining current tax rates past 2018 would have required state lawmakers to take action. State financial projections and the General Fund budget already set by law for 2018-19 incorporated the lower tax rates.

Lawmakers would have needed to vote to raise rates previously scheduled to drop. That would have meant a tax increase.

The Cooper budget document admits as much. Freezing the rates would have generated another $110 million for Cooper to spend in the new budget year that starts next week. Analysts project that the frozen rates would have led to $282 million in higher taxes during the first full year of implementation.

That’s a tax increase.

To be fair, Cooper isn’t the first Democrat to employ this trick. Former Gov. Beverly Perdue tried the same maneuver in 2011, when her budget called for most of a temporary sales tax to remain in effect. Taxpayers would have seen the sales tax rate drop by 0.25 percent, instead of the full 1 percentage point decline called for in existing state law.

Exhibiting a remarkable degree of chutzpah, Perdue attempted to claim that her proposal represented a tax cut. The General Assembly’s new Republican leaders didn’t buy that argument. They rejected Perdue’s plea and allowed the full 1 percent cut to take effect as scheduled.

Republicans aren’t immune from employing this tactic. Legislators rewrote their gas tax formula in 2015 to prevent a significant tax cut that would have taken effect because of a drop in wholesale gas prices. While drivers ended up seeing a decline in the gas tax rate, that decline was not as large as it would have been if legislators had left the old law in place.

Today, as Republicans and Democrats campaign for control of the General Assembly, only one party is making an indirect argument for higher tax rates. Decrying “tax breaks for corporations and the wealthy,” Democrats who endorse the Cooper budget are supporting raising taxes by hundreds of millions of dollars each year.

A second way in which Democrats are signaling their support for higher taxes involves the current debate over a state constitutional amendment. Article V, Section 2(6) of the N.C. Constitution caps the state personal income tax rate at 10 percent. The proposed amendment would lower that existing cap to 5.5 percent.

By itself, this change would not affect anyone’s tax rate. The current flat rate for 2018 is 5.499 percent. Existing state law drops that rate to 5.25 percent in 2019.

Support for the proposed amendment is not unanimous among limited-government conservatives. Advocates want to set up an obstacle to block future government overspending, but critics caution against taking a step that would reduce state government’s flexibility during the next economic downturn or natural disaster.

Many Democrats have raised similar concerns. But some venture even further. They imply that a lower cap on the state income tax — by itself — would guarantee future harm for North Carolina.

The left-of-center N.C. Justice Center offers a common version of this argument. Among the ways the income tax amendment would affect North Carolina, according to the center, “it would put our children’s education at risk,” “it would put the health and well-being of North Carolinians at risk,” and “it would threaten our state’s natural resources and quality of life.”

Note the certainty associated with those claims. It’s not just that these ills are more likely. It’s not that these pitfalls could arise if legislators fail to consider potential unintended consequences. Reduce the cap on the state income tax rate, the Justice Center suggests, and the state clearly will endure each of these evils.

If that’s true, there’s an obvious corollary: North Carolina must raise its income tax rate above 5.5 percent at some point in the future to avoid an otherwise gloomy fate. There’s no alternative scenario. No amount of fiscal discipline will help. No growth-enhancing policies will steer the state away from danger.

It’s possible to state that argument more directly. “Republican legislators will raise your taxes, and so will we. They won’t tell you. We just did.”

History tells us how that argument worked for Walter Mondale. Not well. It remains to be seen if N.C. Democrats’ less forthright approach will produce a different outcome.

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Mitch Kokai is senior political analyst for the John Locke Foundation.