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Letter from the Editor: Ready to consider a county income tax?

By Kirk Ross

Much has been made of the Orange County tax revolt, but few suggestions in the way of real reform have come out of it. A couple of weeks ago, we asked in all sincerity for those who think the county government is wasting money to point out just what programs and services ought to get the axe. I put the same question to folks on OrangePolitics. There were a couple of responses involving across-the-board cuts, but no one did the work the commissioners will have to do — offer real cuts affecting real services and real people.

The push-back on taxes is part of a long-running back and forth over how to fund local government and it underlines how the tools we have — property taxes and sales taxes — are limited and inefficient and are skewing policy. We are hell-bent in Orange County to increase our commercial base not solely because we want to provide in-county jobs, but in order to reduce the property-tax burden on homeowners. We’re doing that despite the fact that the cards are stacked against it having a great effect, because more than 40 percent of the county’s land is taxed under the agricultural use-value program and another 10 percent is owned by nonprofit entities (mainly Duke and UNC).

In the coming years, it will take several million square feet of commercial space just to keep up with residential construction and several million more to significantly alter the ratio of residential to commercial. Throw in the fact that financing for commercial projects has all but dried up and the likelihood that public uproar would make building megamalls and factories difficult, and you can see why adding commercial square footage is not the answer.

Under the current system, the only surefire way to reduce the property-tax burden would be to gut school funding. By making our schools lousy – by, say, lowering teacher pay to attract less adept educators and eliminating extra-curricular activities, advanced courses and efforts to reduce class size – we could cut the budget this year and ensure a reduction in housing demand, home values and property taxes for years to come.
Don’t like that idea? Me neither.

So here’s another one that makes more sense: a countywide income tax.
In addition to being a more progressive way to raise revenue, an income tax would not unfairly burden those with valuable land but little income — a much more direct way to achieve one of the chief goals of increasing commercial space.

Several states have this system. Maryland allows its counties an income tax and tax rates there range from about 1.2 percent to 3.6 percent. The idea might not be best for all counties in North Carolina, but in places like Orange County, where income growth is fairly robust, it might.

I know what you’re thinking and, yes, everyone I’ve pitched the idea to has had an initial reaction akin to Munch’s “The Scream.” But once the idea that an income tax coupled with a very serious reduction in property tax sinks in, it doesn’t seem so far-fetched.
It is also a lot more politically feasible than you might think, since it would actually reduce the cost of owning a home and thus not raise the ire of the same forces that fought the real estate transfer tax.

Although no one’s pushing the idea hard right now, it’s being studied by legislators and local government organizations. Naturally, before Orange or any other county could adopt an income tax, enabling legislation and a tweak of the state’s tax laws would be required.
And given the current climate in our county, such a move would need to be accompanied by binding assurances that the new revenue stream really would result in a significant drop in the property-tax burden.

Figuring out how to implement a system would be difficult. But not nearly as difficult as figuring out how to continue with the current system and not ruin the very things that make us proud to call Orange County home.

2 Responses

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  1. Sophie King-Lowe

    Kirk, you have done as so many others, dismissed the idea of cutting back or couched it in terms that are unpalatable.

    Maybe a review of the current budget would be an instructive article to write. This would be laborious for you but I think you would see the diffuse nature of the problem. It is “not one program” that is the cause of the excessive spending of Orange County.

    Many families including my own have been forced to do so.

    Why should Orange County be insulated from this? Is it fair for me to have to give them even more of my fewer dollars?

  2. Monitor

    Criticism like this always comes from people with a larger agenda, including anti-Chapel Hill sentiment and general anti-tax (no matter what) attitudes. You want to live in OC and get services without paying for them. Times are tight for all of us, all the more reason not to mindlessly gut all services just because you have resentments.

    Not sure an income tax is the clear winner when it comes to reform, especially if it’s a personal income tax used to subsidize concessions to commerce. But it’s at least worth challenging the “tax-revolt” people to do something other than raise an “across-the-board” unfocused ruckus.