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No magic money tree for the state! <br /> The solution cannot be piecemeal. <br /> Modernizing Tax and Finance <br /> Sales Tax <br /> • Discriminates against manufacturing. <br /> • Relies on a shrinking base. <br /> • Regressive dependence on goods. <br /> The sales tax base is shrinking as percentage of the economy <br /> The Income Tax <br /> • Depends on "bracket creep": Unseen tax increase on the middle class. <br /> • Volatile: New spending or painful cuts. <br /> • Uncompetitive: High rates, often paid by small business. <br /> NC depends heavily on the income tax (charts). <br /> Growth in state revenues is volatile (graph) <br /> State and Local Responsibilities <br /> - There are state responsibilities where shortfalls occur (adequate funding for roads <br /> & schools). <br /> - There are local responsibilities that are growing (roads) but lack a source of <br /> revenue. <br /> - Only a comprehensive solution can address all challenges. <br /> Framework for Change <br /> Comprehensive change to be achieved through: <br /> • Balance among sources of revenues <br /> • Broad base <br /> • Low rates <br /> • Targeted social spending <br /> These are the principles informing the work of the Study Commission on State and Local <br /> Fiscal Modernization. <br /> Subcommittee Recommendations: Income Tax <br /> • Reduce individual rates, eliminate participation by households with 2 children up to <br /> $25,000. Top rate lowered <br /> • Combined reporting, reduce corporate rate. <br /> • Thorough review of the franchise tax. <br /> • Eliminate the estate and gift tax. <br />