Here is the short version of my tax waiver plan to save $70 million dollars of our state's tax revenues and leave everyone happy...except our Federal Government who is out their slice of our pie:

1. The State of North Carolina spends about $4.5 billion dollars a year to pay public school employees. This is one of the largest chunks of our State's $14.3 billion (and counting...) budget. 
2. Right after paying these wages our State immediately takes about 6.8% of this money right back as a state income tax.  This method of giving and taking back exposes an unnecessary amount of the public school worker wages to Federal taxes.  The employee may never see this portion of their wages but the IRS certainly does and takes its cut accordingly.
3. If the state would use sound tax planning advice, such as given daily to businesses and individuals across our country, they could limit our exposure to these Federal Taxes.  I say our, because all public school workers are paid with money collected one way or another from all the taxpayers of North Carolina.
4. Other states North Carolina competes with like Tennessee and Florida do not have a state income tax.  They are not transferring unnecessary funds to Washington via paying their state workers.  This puts us at a disadvantage versus those states.
5. The simple solution is to waive our public school workers from having to pay state income tax.  This is called a tax waiver.  Their top line payroll number would have to be reduced by about 7.2% but their real take home pay would be increased by 1.5%.  The result for the State would be that over $70 million dollars per year would remain in our State’s treasury.  This is money that currently is being transferred to Washington for no reason other than lack of basic tax planning.
6. The 1.5% average increase in take home pay for public school employees is not all a true increase in compensation.  Roughly half of this amount is money that is simply not going into retirement accounts workers are forced to participate in.  To the extent they believe these retirement accounts, which they do not control, represent real future value they will not see the whole advantage of this 1.5% increase.
7. However, this tax waiver and increase in take home pay does give the public school employees the option to invest their added funds in the financial vehicles of their own choosing.   This will be a vehicle that they will not have to sue our government for at some future date when the State or Federal governments yet again adjust their promises of retirement benefit programs.

Bottom line.  This tax waiver plan saves our State $70 million dollars per year without having to reduce anyone’s real compensation or raise anyone’s taxes.  The needless transfer of these more than $70 million dollars per year to Washington ends.  Score: North Carolina +70 – Federal  Govt. 0.

Immediate Questions

Yes, this concept could be used for all workers paid by the state.  But, this should be done in steps.  If our State is going to recognize that it can give some individual citizens like teachers waivers on the State’s income tax, then it would be better free market tax policy to consider some other group of NON state workers that should be given the next chance at a tax waiver.  I suggest choosing workers in industries not yet very large in North Carolina, such as dental labs or tool and die shops.  This would not have a negative impact on our net state income tax receipts, while at the same time it would attract higher margin, small-business dominated industries from around the southeast. 

No, I do not think the State should be involved how the individual counties and school boards effect the necessary payroll adjustments across the state.  I would hope local administrators listen to their constituents and do the right thing with this opportunity.  In my case, I know I would be pushing my county commissioners and school board to shift funds such that the lion’s share of the gain in this process ends up in the hands of public school workers who are actually in the classroom, i.e. teachers.

Yes, this tax waiver plan is all perfectly legal.  This is simple tax planning.  Find any competent accountant and ask for yourself.  We are needlessly putting our State at a disadvantage versus non-income tax states like Tennessee and Florida.

Yes, this can happen, if we can convince legislators not to be afraid about stepping down the path of giving tax waivers to individual citizens as opposed to only large corporations, who are successful at lobbying our State Government.  Private individuals may be less apt to remember their politicians with contributions and financial support at election time, but we need to step up now and let our legislature this is the way it needs to be – a really new era.

Yes, we need more people to think like Libertarians.

Make History. Vote Jim Capo for NC Senate District 26 - starting Oct 17!