2013: The year of tax reform

By Grover G. Norquist and Patrick Gleason
November 1, 2012

Policy and political circles are now both talking about the prospect of comprehensive federal tax reform next year. From Capitol Hill to Wall Street to Main Street, people are asking how this reform will be structured. They should look to states across the country for their model. Many are due to embark on sweeping overhauls, even complete rewrites, of their tax codes in 2013.

Lawmakers in numerous state capitals are now poised to introduce major tax reform when they come back into session early next year. As we’ve seen with other policy matters, reforms that percolate in the states often make their way to Washington. More than half of all state governments are controlled by one political party, so it’s likely that state lawmakers will move far more quickly than the folks on Capitol Hill. What these state legislators do will provide a preview of and parallel the debate in the new Congress.

Consider North Carolina. Republicans took control of the General Assembly in 2010 for the first time since Reconstruction, and next month the Tar Heel State is likely to become the 26th state where Republicans control the governor’s mansion and both chambers of the state legislature. The Republican gubernatorial nominee, former Charlotte Mayor Pat McCrory, has said that tax reform will be a top priority if he is elected, which appears likely given his double-digit lead in the latest polls. The state now has one of the nation’s least competitive tax regimes. But based on proposals being discussed at the capitol, North Carolina lawmakers next year could enact one of the boldest and most pro-growth state tax reforms in history.

Reducing and possibly eliminating the state personal and corporate income tax, both now the highest in the Southeast, is also a top priority for many in the legislature. In North Carolina’s final gubernatorial debate last week, McCrory reiterated his intention to provide personal and corporate income tax relief. Legislative leadership and McCrory have made clear that any tax reform would be revenue neutral.

This is the same commitment that Republican presidential nominee Mitt Romney has made at the federal level. It’s an important marker to lay down, since it tells spending interests that tax reform will not be used as a Trojan Horse for raising taxes.

North Carolina is not alone in pursuing pro-growth tax reform next year. Louisiana Governor Bobby Jindal is also planning for it. And, as a governor, when Jindal sets out to do something, he gets it done. This year, for example, school choice and pension reform were his top priorities. By the end of session, he had signed bills that improved the solvency of the state pension system and created the nation’s second-largest school voucher program.

Jindal has already announced that his top priority for the 2013 legislative session will be tax reform.

Though details of the plan are still coming together, in recent public statements Jindal has sketched an outline for reform that would lower rates and broaden the base by eliminating some preferential tax treatment. The direction that Jindal would like to take the tax code could, like the reforms being discussed in North Carolina, make for a more efficient tax code and also improve Louisiana’s economic competitiveness.

As Jindal’s Departments of Revenue and Economic Development explained in a joint report last month, “A broad base with low rates and few exemptions makes it easier for taxpayers to understand and comply with the tax system and for the state and local governments to administer it.”

While personal income tax relief puts more money in the pockets of individuals and families, it also increases the job-creating capacity of small businesses, many of which, as sole proprietors or partnerships, file under the personal income tax system.

At the same time, it is wise for states to reduce and move to eliminate their corporate income tax, one of the most economically damaging levies, and one that doesn’t even generate that much revenue for states.

On average, states get a paltry 3 percent of general fund revenue from corporate income taxes. Most states could easily offset the elimination of their corporate tax through broadening of the sales tax base or modest spending restraint. Both would make a state more attractive to potential employers and investors.

It’s not just Louisiana and North Carolina. Lawmakers in a host of other states, including Oklahoma and Mississippi, are also developing plans for major tax reform in 2013.

It could help their economies. As Harvard economist Dale Jorgenson recently explained to Congress, rate-lowering federal tax reform would provide an economic boost, increasing long-term U.S. output by $7 trillion, he approximates. Similarly, state lawmakers can stoke economic growth where they live by crafting revamped tax codes that make their states more competitive regionally, nationally and globally.

While a number of states are due to compete next year to see which can implement the most pro-growth tax reform, Democratic-dominated states — including Illinois, California and Connecticut — are moving in the opposite direction. They are raising rates and shrinking the tax base, with disastrous results for their state coffers and economies.

It might appear as though Governors Jerry Brown of California and Pat Quinn of Illinois are driving their state economies off a cliff. But remember that no governors or states are total failures — some just serve as bad examples.

The tax reform battle on Capitol Hill next year will get most of the media attention. But keep an eye on the states: Major tax showdowns are set to take place in numerous state house Gucci gulches in 2013.


PHOTO: Louisiana Governor Bobby Jindal, speaking during the Republican Leadership Conference in New Orleans,  is planning a major state income tax overhaul next year.  Sean Gardner / Reuters



We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Hi there! Would you mind if I share your blog with my facebook group? There’s a lot of folks that I think would really appreciate your content. Please let me know. Thanks|

I consider something truly special in this internet site .

Please let me know if you’re looking for a article writer for your weblog. You have some really good articles and I feel I would be a good asset. If you ever want to take some of the load off, I’d love to write some articles for your blog in exchange for a link back to mine. Please shoot me an e-mail if interested. Thank you!

Hello there! Do you know if they make any plugins to help with Search Engine Optimization? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains. If you know of any please share. Kudos!

This is very interesting, You are an excessively professional blogger. I’ve joined your feed and stay up for in search of extra of your magnificent post. Also, I’ve shared your website in my social networks|

Hey! Do you use Twitter? I’d like to follow you if that would be ok. I’m definitely enjoying your blog and look forward to new posts.

I’m amazed, I must say. Seldom do I encounter a blog that’s equally educative and amusing, and let me tell you, you have hit the nail on the head. The problem is something which too few men and women are speaking intelligently about. I am very happy that I stumbled across this during my hunt for something concerning this.|

Hello there! This post could not be written much better! Looking through this post reminds me of my previous roommate! He always kept talking about this. I most certainly will forward this information to him. Fairly certain he will have a very good read. Thank you for sharing!

Everyone loves what you guys tend to be up too. This sort of clever work and exposure! Keep up the excellent works guys I’ve added you guys to blogroll.

Thanks for sharing your thoughts on %meta_keyword%. Regards|

I could not resist commenting. Very well written!

Right here is the right webpage for anybody who wishes to find out about this topic. You understand a whole lot its almost hard to argue with you (not that I actually would want to…HaHa). You certainly put a fresh spin on a topic which has been discussed for years. Excellent stuff, just wonderful!

Every weekend i used to pay a quick visit this web page, because i wish for enjoyment, since this this website conations truly pleasant funny data too.|

Spot on with this write-up, I actually believe this amazing site needs much more attention. I’ll probably be returning to read more, thanks for the info!|

Hi! I know this is kinda off topic nevertheless I’d figured I’d ask. Would you be interested in trading links or maybe guest writing a blog post or vice-versa? My website covers a lot of the same subjects as yours and I think we could greatly benefit from each other. If you might be interested feel free to send me an email. I look forward to hearing from you! Terrific blog by the way!

I’m no longer sure where you’re getting your info, but good topic. I must spend a while finding out more or working out more. Thank you for fantastic info I used to be looking for this information for my mission.|

Wow! At last I got a web site from where I know how to in fact take valuable facts concerning my study and knowledge.|

It is in reality a nice and useful piece of information. I am glad that you just shared this helpful info with us. Please keep us informed like this. Thanks for sharing.|

It’s very straightforward to find out any topic on web as compared to textbooks, as I found this article at this website.|