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May 04, 2007

Shifting tax shares

The North Carolina economy has seen major changes over the last three decades, and so has the type of revenues that state and local governments depend on. N.C. State University economist Mike Walden summarizes these major changes.

"There have been some big changes … and these occur somewhat slowly. But when you look over, say, three decades they actually can look rather big," he says. "In the last three decades what we have seen is that the state has relied much more on the income tax as a source of revenue. Also relying more on fees and charges.

"Contributions of the property tax and the sales tax to overall revenue have remained relatively stable. And two taxes, however, have seen their shares decline quite substantially: the corporate income tax, where its share has gone down about three-quarters; and the gas tax -- its share has gone down about 50 percent.

"And some of this is due to … underlying trends in our economy; for example, many more businesses are smaller businesses today, so they are reporting their income on the individual income tax form rather than the corporate income tax form.

"But I think the bigger question is for our elected officials -- whether these are the kind of trends they want to have happen," he concludes. "Are these trends good for both the North Carolina economy as well as for citizens in this state? And if not, what kind of changes might those elected officials try to enact?"

Posted by deeshore at May 4, 2007 10:07 AM