RALEIGH – North Carolina's major-party candidates for governor have starkly different views on whether the state's economy is on the right track – and on what changes are needed to North Carolina's tax system.
Lt. Gov. Walter Dalton, the Democratic nominee, said he knows citizens are still hurting given a 9.7 percent unemployment rate but sees the economy on an upward trajectory because of the state's commitment to quality education and attracting high-tech industries. Republican Pat McCrory, a former Charlotte mayor, says high taxes and Democratic policies have hurt the state economy.
McCrory believes a tax system overhaul would provide an incentive for business leaders and entrepreneurs to build in North Carolina. He also said he'll seek to lower individual and income tax rates.
"Our economy is broken in North Carolina," McCrory told The Associated Press. "It's going to take more than a tweak to change the economy and become competitive, not just with our neighboring states but other states throughout the United States. So I'm looking at total reform."
But Dalton said no such tax overhaul is necessary. The Democrat accuses McCrory of planning to raise sales taxes on lower- and middle-income families and older residents to make up for lost income tax revenue.
Dalton favors targeted tax breaks for small businesses and for companies that hire the long-term unemployed. He also wants to revive the manufacturing sector, encourage the growing biotechnology sector and nurture new niche industries such as military maintenance.
The state's attractiveness hasn't faded, Dalton said. Rather, he told the AP, North Carolina has been hit by forces both within and outside the state – federal trade policies, a credit crunch and spending cuts by the Republican-led Legislature that eliminated thousands of jobs.
"If you look at the tough economy that we face, I think a lot of it – the difficulties – were superimposed upon us," Dalton said in a separate interview.
Both the corporate income tax rate of 6.9 percent and the top individual income tax rate of 7.75 percent are the highest among Southeastern states. McCrory said the rates punish in-state business owners and give the wealthy and business executives a reason to leave.
McCrory said he would initially work to lower the state's income tax rates to the level of South Carolina and Virginia, which range from 5 percent to 7 percent.
Many tax-reform proponents favor expanding the number of items subject to the combined state and local sales tax by including more services now exempt. The combined sales tax rate – 6.75 percent in most counties – could then be lowered, the argument goes, providing more stable revenues over time.
McCrory said he hasn't taken a stand on subjecting more services to the sales tax. He said he wouldn't immediately increase the state's share of revenue in his plan. Dalton said he opposes sales taxes on additional services now because many people are struggling and trying to get back to work. He accuses McCrory of wanting to eliminate income taxes all together.
Dalton said he would seek to place income limits on a Republican-penned tax break that gave $3,500 tax breaks to businesses and that he'd work to collect more sales tax revenue from Internet-based sales.
"I take a realistic, pragmatic approach," Dalton said.
Dalton supported Perdue's proposal earlier this year to raise the sales tax by three-quarters of a penny to restore education cuts, but he no longer sees the need for such an increase in light of higher revenue projections this year.
The nonpartisan Tax Foundation in Washington this month ranked North Carolina as having the seventh-worst business tax climate in the country. But Forbes last year ranked North Carolina the third best place to do business.
Libertarian nominee Barbara Howe of Oxford said she believes tax reform is needed but that elected leaders must first get spending under control before determining what level of taxation is absolutely necessary. Howe said Libertarians would ultimately prefer government revenues limited largely to user fees.
"If we get government out of those areas in which it has no business and control spending, then the amount of revenue we need will be re-examined and we can easily reform our tax structure," she said.
Alexandra Sirota, director of the liberal-leaning North Carolina Budget & Tax Center, said any effective reform must broaden the sales tax base to cover more services. That requirement will lead to political fights over who will have to pay less or more.
"Comprehensive revenue modernization is a daunting task," she said.