- Details
-
Tuesday, 12 August 2025
-
Written by John Hood
While the North Carolina House and Senate continue to discuss how — or whether — to resolve their budget dispute and enact a new fiscal framework for the next two fiscal years, now is an excellent time for tax reformers in both chambers to spell out precisely what they hope to accomplish.
Some conservatives in the state capital and elsewhere want North Carolina to stop taxing personal income altogether. They point to the economic success of Florida, Texas, and other states that have never levied taxes on personal income. Since income taxes make up half of state revenues, how should North Carolina make up the difference? This faction advocates some combination of higher sales or excise taxes, greater local responsibility for education and other services (financed by higher property taxes), and lower state expenditures.
As I have previously argued, I don’t think it is realistic or necessary for North Carolina to abolish its personal-income tax altogether, although I strongly favor eliminating our much smaller but counterproductive tax on corporate income (it only generates about 5% of General Fund revenue, and does so rather inefficiently).
I agree that income taxes as currently structured are unfair and economically destructive. By taxing resources invested in productive capital multiple times — as personal income, as corporate income, and as dividends or capital gains received on investment principal that has already been taxed — the current system basically encourages us to eat our seed corn rather than planting it for a larger return in the future.
We should be taxing consumption, not total income. So, why don’t I favor replacing most or all of North Carolina’s income-tax revenue with sales-tax revenue? Because that’s not really going to happen, at least not with the tools available. State taxes on retail sales don’t actually apply to all consumption, to every good and service sold at retail. Large swaths of the services households purchase are not and will never be subject to sales tax. That’s borne out by decades of experience with sales-tax systems in other states.
Here’s another way to explain my point: our income-tax base is too broad, yes, but our sales-tax base is too narrow.
When households receive income, they can do one of three things with it: spend it, donate it, or save it for later (which funds investment in physical, financial, or human capital to produce future earnings for consumption or donation).
In 2023, total personal income in North Carolina was about $670 billion. Total spending on personal consumption was roughly $554 billion, of which $204 billion was spent on goods and $350 billion on services. Some of those services are, indeed, taxable. But purchases of medical care ($88 billion) and financial services ($40 billion) are mostly exempt from the sales tax, as are legal and other professional services that make up lots of spending but aren’t separately reported by the Bureau of Economic Analysis.
On the other hand, some business-to-business purchases are subject to North Carolina tax — and they shouldn’t be! A retail sales tax should be just that, a retail tax. Otherwise, you create market distortions and, on the margin, encourage horizontal and vertical integration of business enterprises that could function more efficiently as separate entities.
If I could be persuaded that the North Carolina General Assembly will do something no other state legislature has managed to do — expand its sales tax to encompass all goods and services sold at retail — I might well embrace an end to the income tax. Given the practical and political realities of the situation, however, I favor a different strategy.
Its underlying formula is a simple one: income equals consumption plus charitable giving plus net savings. To tax consumption, then, we can start with total income, subtract charitable giving and net savings, apply a standard deduction adjusted for family size, then tax what’s left — which is, by definition, consumption.
I recognize that’s easier said than done. But it’s still more realistic than taxing hospital bills, I promise.
Editor’s note: John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
- Details
-
Tuesday, 05 August 2025
-
Written by Bill Bowman
Fayetteville and Cumberland County can learn a lot about common-sense leadership by observing recent events in our state.
On Tuesday, July 29, the North Carolina Senate demonstrated their commitment to the people by overriding twelve of Governor Stein's vetoes. This action successfully halted a series of policies that many believed would have pushed our state toward radical progressive governance.
These veto overrides signal a renewed focus on common-sense principles and respect for individual liberties. One significant achievement is the passage of the "Freedom to Carry NC" Act, which will make North Carolina the 30th Constitutional Carry state.
This measure respects the rights of law-abiding citizens to self-defense during an era of rising crime and violence. Another significant override eliminated "DEI" (Diversity, Equity, and Inclusion) initiatives in public and higher education. This ensures our schools can focus on traditional S.T.E.M. subjects, reading and comprehension, and academic excellence rather than on divisive social and political issues.
The Senate also took a firm stance on public safety, sending a clear message that the security of North Carolina residents is of paramount importance.
These actions are an encouraging sign of the positive direction our current state leadership is taking by both Republicans and Democrats. This is the confident and responsible leadership that we should demand of our local Fayetteville and Cumberland County elected officials.
Honest, intelligent, and common-sense leadership works, and doing the right things for the right reasons has always benefited all constituents. We saw this firsthand when the new Cumberland County Board of Commissioners was elected.
As municipal election time draws near, it is vitally important that residents vote for individuals who put the overall welfare of the community as their highest priority. Voting is the only opportunity we have to influence the future direction of our community.
What our state leadership is accomplishing in Raleigh must be duplicated locally to ensure prosperity, common-sense leadership, and good governance.
I encourage U&CW readers to vet all local candidates thoroughly. Candidates will be emailed a questionnaire from our editor, and their answers will be published in an election guide put together by the U&CW team.
I encourage both readers and candidates not to rely solely on Facebook and other social media outlets for accurate information or to get their message out.
When it comes to politics, seeing is believing. Look around Fayetteville, and you be the judge. Ask yourself: What positive changes have you really seen in the last decade? And do you want more of the same? Then, compare Fayetteville and Cumberland County to the growth and prosperity of surrounding counties. In the end, it all comes down to integrity, honest leadership, and vision.
So, trust your instincts and vet all the candidates thoroughly to do your part in creating a better community for future generations.
Thank you for reading Up & Coming Weekly.
(Candidates running for local offices in Fayetteville attended the Greater Fayetteville Chamber's Candidates Academy on Aug. 1. The Chamber put on the event to help inform those who are running for office. This year, seats on the Fayetteville City Council and Mayoral positions across the region will be voted on in November. For more information about the Candidates Academy, see page 8. Photo courtesy of Jami McLaughlin)