Sunsets in Governor Perdue's July 7, 2009, Proposal

A friend told me Governor Perdue just let out her tax plan, findable by clicking via http://www.news-record.com/blog/53964/entry/63759.

There are many line items I can’t decipher, but I’ll start with sunsets: automatic termination of rules. The Governor would sunset a number of tax increases. Now I imagine we can find plenty of waste, fraud, abuse, corruption, and irritating bureaucracy here in North Carolina or wherever (and let’s attack all that), but I also understand that just having a road from my house to the grocery store and to the doctor’s office (not to mention having the police) is worth everything I pay in taxes many-fold, so I like sunsets on tax cuts, not on tax increases.

Sales tax sunset

Sunsetting the sales tax increase on October 1, 2010 saddens me. I doubt that our budget will magically come into balance by then, so I suppose the responsible Legislators willing to vote for unpopular taxes today will have to do it again next year. Sorry for the cliché, but this is like cutting the cat’s tail off an inch at a time.

Income tax sunset

Sunsetting the increase in the income tax for folks with huge incomes has the minor benefit of maybe keeping someone from moving away forever in rage or frustration. I can imagine that if the increase were permanent, someone might say, “That’s it. I’ve had it. I’m out of here,” sell out, and leave the Land of the Long Leaf Pine, for a three-quarters of a percent increase, the proverbial straw. But between now and December 31 of next year (2009 is included, I think, if the proposal follows a Senate [make that House] bill, http://www.ncga.state.nc.us/Sessions/2009/Bills/Senate/PDF/S202v6.pdf), will people sell out in this depressed real estate market? Maybe not, but we can probably figure on more folks following the path of a friend of mine who spends at least 183 days in income-tax-free Florida every year and carefully charges something on his credit card there every day to prove he’s not a North Carolina resident.

Automatic sunset

I guess you could solve this problem by saying, “If sales tax receipts in August 2010 equal or exceed $X, this temporary emergency sales tax increase expires on September 30, 2010.” Or something. The idea would be that sales tax receipts are a good measure of economic activity, and to set the $X to sunset the tax if the economy is recovering, but to continue the tax if not. A month’s sales tax receipts might not be enough (are we keeping that strange back-to-school sales tax holiday in August?). And August’s receipts might not be knowable in time for early October action. And that $X threshold creates an undesirable cliff, where one dollar (with rounding, a penny) creates an enormous difference. And there may be a better formula than sales tax receipts, though using sales tax receipts would give more certainty than “a [Federal] rule that would sunset some portion of a legislated tax cut if revenues fell below some x percent of GDP,” http://ntj.tax.org/wwtax%5Cntjrec.nsf/E01BF9150131151385256F3A006591D4/$FILE/Article%2003-Penner.pdf, since GDP (or the State’s actual budget position) takes more interpretation to measure than sales tax receipts take. And sales tax receipts or any formula might not give Legislators much cover. But it’s worth thinking about.