Lesson of New Tax: Get More Discretionary About Spending
For years there has been talk in North Carolina about modernizing the tax code, which was based on a manufacturing economy that is largely obsolete. Textiles, tobacco and furniture have been supplanted by services, including hospitality, dining, entertainment, tourism and the arts.
In anticipation of the changes, representatives of various sectors such as real estate brokers argued for exemption of their respective enterprises because they are such an important part of the economy — as if the old-line manufacturing industries that once anchored the tax base were not major job creators. And the conversation about taxing hospitals, organized as nonprofits but functioning as the major economic drivers in Forsyth and Guilford counties, has hardly even begun.
We got tax reform last year, in a fashion. The idea in years past was to spread the burden more evenly so that services were taxed along with goods. With Republican Pat McCrory taking control of the executive branch and GOP lawmakers emboldened with supermajorities in both the House and Senate in early 2013, the transformation played out somewhat differently. Both McCrory and his counterparts in the NC General Assembly were keen to reduce both personal income and corporate taxes, which they did. McCrory, Senate President Pro Tem Phil Berger and House Speaker Thom Tillis announced an agreement in July to mothball the progressive personal income tax, which had taxed wealthier citizens at 7.75 percent and those of more modest means at 6 percent, replacing it with a flat rate of 5.8 percent across the board. Similarly, they agreed to reduce the corporate income tax from 6.9 percent to 6 percent in 2014 and 5 percent in 2015.
Both McCrory and Tillis touted the tax cuts as an inducement for businesses to create more jobs and, as the governor put it, a way for “North Carolinians to put more money in their pocketbooks so that they can spend and invest in North Carolina.”
Left unsaid in the announcement was that some of the revenue losses would be offset by a mostly new sales tax on admission charges to entertainment activities, including live performances, movies, museums, exhibits and guided tours. The base tax across the state is 4.75 percent. Adding local levies, the total tax for admission charges in Forsyth and Guilford counties is 6.75 percent, Richard Emmett, chief operating officer of the Arts Council of Winston-Salem & Forsyth County, said.
The venues and organizations that carry the burden of the new tax, effective Jan. 1, include both nonprofits and for-profit businesses, ranging from Ziggy’s (owned in part by YES! Weekly publisher Charles Womack) to large-scale movie houses such as Carmike Cinemas and Regal Entertainment Group. The list includes Triad Stage, Theatre Alliance, the Blind Tiger, the Garage, the Greensboro Symphony, Piedmont Opera, Reynolda House Museum of American Art and Old Salem Museum and Gardens.
“Generally, I think the consumer is the one who is going to be spending more,” Emmett said. “If the groups are raising ticket prices… you’re going to price out certain people that can least afford it. That’s going to be an unintended consequence. As we try to make the arts more accessible to everyone, with a 6.75 percent tax on admission, that’s going to be harder for some people.”
The paradigm of the industrial economy depended on people buying stuff — new cars, new washing machines, new microwaves — that was American made. That consumer spending kept people employed and spun off tax revenue to pay for services by local, state and federal government. The new paradigm depends on people utilizing services — going to the movies, dining out, even, God help us, paying to see live music. Don’t get me wrong: In my book, checking out live music is practically a civic duty, but music clubs are in the same category of endangered species as newspapers.
“You’re going to see that [tax] in your movie ticket price,” Emmett said. “You’re going to see it in your ticket for music events at the Garage and Ziggy’s. I don’t think that’s going to make people stop going. It’s going to be more discretionary.”
The loudest complaints thus far have come from the major theater chains. While music venues and dramatic theaters that began selling tickets for 2014 productions before Dec. 31 were grandfathered, the movie theaters have had to pay the tax immediately because they don’t typically sell tickets weeks or months in advance.
With my wife giving up full-time work to care for our five-month old baby and with our efforts to save for a house, we typically rely on Netflix instead of going to a theater to see first-run movie. We made an exception on Christmas week to see American Hustle at Regal Greensboro Stadium 16.
Then again, considering that we are planning to cut back to the basic $9-per-month subscription, maybe we’re going to the wrong kind of theaters.
Carmike Cinemas in High Point shows second-run features. Due to the new tax, they’ve raised ticket prices from $1.50 to $1.75.
Now, that we can probably handle. !