Spending & Taxes

Freedom Budget 2005 continues the tradition of JLF alternative budgets that revise the governor’s Continuation and Expansion budgets. If an item is not included here, the authors accept the governor’s proposal. This includes all pay raises for state employees and some tax changes. The specific recommendations detailed in this report are made as additions or subtractions from Gov. Easley’s budget.

Supporters of a proposed government lottery argue that it would be a welcome alternative to raising state taxes to fund education. But there is no evidence to suggest that politicians in lottery states use the proceeds to reduce other taxes. They just allow state budgets to grow. Also, properly understood, a state-run lottery does increase taxes — it creates a government gambling monopoly and then levies a steep tax on it.

The state of North Carolina and our governor, Mike Easley, received mediocre grades on two recent report cards. Tax increases that were to be temporary when passed in 2001, but which continue in the governor's budget through at least 2006, contribute to the low grades. The additional tax bracket and half-cent sales tax will have added nearly $1.9 billion between their original sunset and July 2007, while Gov. Easley's additional taxes will bring almost as much in FY2006-07 alone.

Governor Mike Easley says his budget for the 2005-2007 biennium is the model of fiscal prudence, but the numbers belie this. Spending increases nearly $1 billion to $16.9 billion. The governor claims $200 million in spending cuts, but they are far outweighed by the $741 billion in higher taxes. Tobacco Trust Fund transfers and unreserved credit balance close the rest of the $1.1 billion structural deficit. The General Assembly will need to be more forthright if it is to put real restraints on government growth.

Despite a $1.3 billion deficit, Gov. Mike Easley will propose up to 6 percent higher spending in his 2005-06 budget, even with small proposed savings in most agencies. Medicaid and education spending have grown rapidly, and will continue apace. Instead, the governor plans to keep the temporary half-cent sales tax and add a large cigarette tax to pay for higher spending. This is no way to address what the Fiscal Research Division calls a structural budget deficit.

State lawmakers are scheduled to meet in Raleigh today to consider a package of tax breaks and other incentives designed to lure a Dell Computers plant to North Carolina. While politicians often portray such deals as necessary to promote growth and job creation, they serve to transfer resources from existing firms, sometimes even competitors, while failing to address tax and other problems afflicting businesses of all sizes in the state. A good place to start in improving the state’s business climate would be to reduce marginal tax rates.

N.C. is currently considering important modifications to its tort law, especially its application to medical malpractice. Proponents say it's the only way to ensure quality medical care remains affordable in N.C. Opponents say fluctuations in interest rates and the "insurance cycle" in general account for premium changes, and that tort reform would imperil the health of North Carolinians by "subsidizing" negligent physicians.

Major road projects are freeway and arterial widenings, new freeways and arterials, new exits, climbing lanes and other major actions that are large enough to likely affect growth. Between 1990 and early 2004, North Carolina constructed 349 major road projects costing about $7.34 billion, about 50 percent of the total expenditures for the TIP and Loop roads and about 1/3 of the total NC State highway program over the same period. This study reviews recent trends in North Carolina’s highway funding practices and the cost-effectiveness of these major capital actions.

From statehouses to corporate boardrooms to community centers, Americans are nearly universally aligned in support of transforming public education. Dismayed by overcrowding, low test scores, and high dropout rates, many people advocate overhauling the educational system in our country. Yet, however unified Americans may be on the need for educational reform, their perspectives diverge greatly on how to achieve it. Recent proposals have ranged from increasing federal funding, to requiring more stringent teacher accreditation, to lengthening school days and terms. Despite more than a decade of discussion, legislative proposals, and counterproposals, many problems remain. Yet, as public debate rages on, a group of concerned parents and educators, advocating freedom and change, is already quietly revolutionizing public education. The persistence of these reformers has resulted in a compelling alternative to traditional public schools — charter schools.

As the North Carolina Senate prepares to vote on its proposed 2004-05 budget plan, it is important to keep in mind that an accounting change included in the plan has the effect of masking the magnitude of the proposed increase.