California thinking

Date posted: January 20, 2012

California has been one of the states hardest hit by the recession, and the state continues to face severe budget problems. A commission, the Think Long Committee for California, has just issued their recommendations for changing the tax system in that state. N.C. State University economist Mike Walden considers whether any of the committee’s ideas are relevant for North Carolina.

“Well … many states have had these kinds of commissions. North Carolina’s actually had a couple of them in the last 10 years. And what the California commission came out to recommend very much echoes what we’ve heard from other states. For example, what the commission in California recommends on the tax side is to broaden the tax base. They specifically say that sales tax should tax services.

“They also though want to reduce tax deductions and thereby reduce tax rates. So, in other words what they want to do is, is perhaps take taxes more so out of decision-making. They also recognize that the economy is going to go through ups and downs. We’ve clearly seen that in California, but also in our state. So, they recommend that budgets be done over a multi-year period and to develop a large rainy day fund to balance spending in bad years against spending in good years.

“Now in terms of applicability for North Carolina, North Carolina’s actually talked about most of these things. We’ve talked about broadening the tax base, lowering the tax rate. That’s a very, very controversial area though. No conclusion. … No political conclusions have been done there.

“North Carolina does have a multi-year, two-year budget. We may, for example, take a cue from California (to) think about going longer. We do have a rainy day fund in place. Again, the question might be, Is it large enough to balance out good years and bad years over time?

“So, what you’re hearing from states … really is the same tune. But the tune is very hard to implement.”

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