News
Email
Print
Tax debate delays budget
N.C. legislators at odds over which ones to raise
ADVERTISEMENT
Published: July 4, 2009
RALEIGH - The state's new budget year has arrived, but state legislators aren't close to an agreement on a final budget that will resolve the state's massive shortfall.
The major stumbling block is over taxes. The key budget writers -- all Democrats -- agree that taxes should go up so that the state can raise about $1 billion in new revenue. But they are deeply divided about which taxes to raise.
Various changes to income taxes, sales taxes and business taxes are all being debated. One thing, however, seems almost certain: There will be no increase to state cigarette taxes this year.
Legislators passed a temporary spending plan this week that keeps state government operating in the 2009-10 budget year, which began Wednesday. The temporary plan lasts only until July 15, although legislators could renew it if they don't have a final budget by then.
Over the holiday weekend, budget talks are on hold. Legislators left Raleigh on Thursday and are not expected to resume discussions until next week.
They are taking the weekend off despite an admonition from Gov. Bev Perdue about the need to reach a compromise quickly. Perdue said this week that the state effectively loses $5 million for each day that there is no final budget in place.
"The bottom line is they've got to stop this tit for tat," Perdue said. "And they've got to come to either a long-term or a short-term decision."
Democratic leaders in the N.C. Senate have their eyes toward long-term tax reform. They want to use the budget crisis as an opportunity to overhaul the state's tax structure, which most experts consider outdated.
Senate budget-writers want to reduce the overall sales-tax rate but expand the sales tax to many more goods and services
Budget-writers in the N.C. House are criticizing several elements of that plan, including a proposal to apply the sales tax to electricity. The House also disagrees with a Senate proposal to begin taxing Social Security benefits for upper-income people.
The tax plan being pushed by the House is intended as a more immediate measure to get the state through the budget shortfall, which Democrats describe as being more than $4 billion. The main components of the House plan are an increase to the sales-tax rate and an increase to the income-tax rate for the highest earners.
"I regard the House plan as short-term and something that could last for a couple years while we work on the things that the Senate is talking about," said House Speaker Joe Hackney, D-Orange.
Senate Democrats, however, don't like the House plan. They say, for instance, that raising income taxes for the wealthy would hurt small-business owners.
It seems likely that legislators won't rely on "sin taxes" on products such as tobacco. Perdue has proposed such tax increases, and some of the Democratic leaders in both the House and Senate favor them.
But Hackney said that a budget that included cigarette-tax increases wouldn't likely pass in his chamber. "To pass a plan in the House, you need 61 votes," Hackney said. "We have a number of people who don't vote for tobacco taxes. And we have 52 people who don't vote for any taxes. So you can do the math."
The 52 people Hackney was referring to are the House's Republicans. Republicans -- who are largely left out of final budget negotiations -- have sharply criticized both the Senate and House plans because of their reliance on tax increases.
Democrats say tax increases are necessary to prevent devastating cuts to education, health and other essential government services.
Although the recession has made the writing of this year's budget unusually difficult, it's not unusual for North Carolina legislators to begin the fiscal year without a final budget in place. In each of the past six years, legislators had to extend their deadline with a temporary spending plan.
And North Carolina is not alone. More than 40 states are facing budget shortfalls this year, according to the National Association of State Budget Officers. At least seven states had to extend their legislative sessions or hold a special session because they had not passed a final budget in time for the start of the budget year, according to the National Conference of State Legislatures.
■ James Romoser can be reached at 919-210-6794 or at jromoser@wsjournal.com.
Email
Print
