Archives: Joseph Coletti

Gov. Mike Easley proposed a $20 billion operating budget and $20.1 billion total spending plan for fiscal year (FY) 2007-08. The operating budget is $1.3 billion more than in FY 2006-07, a 7.2 percent increase.

Budgets reflect priorities. When families face a new expense, they must cut back on another expense. Governments do not have this limitation. When legislators find they have spent too much or that there are new activities worth funding, they can raise taxes to make sure the budget balances and pass along the tough decisions to businesses, entrepreneurs, and families.

The Federal Earned Income Tax Credit (EITC) has helped single mothers escape poverty, but it has penalized married parents and is plagued by misunderstanding and fraud. A state EITC at five percent of the federal level would cost $66 million with the same problems but less impact. State tax credits should address problems in the federal tax code, such as the penalty against middle class parents who do not qualify for means-tested programs or against individuals who do not purchase health insurance through their employer. The state child tax credit addresses the former and a health insurance purchase tax credit would address the latter problem.

Legislative leaders may be planning a nearly billion-dollar tax hike. The state would take one cent of the sales tax from counties and offer them the option to increase the local sales tax by one cent. To make the trade palatable, legislators would stop charging counties for 15 percent of Medicaid, offer an earned income tax credit for low-income workers, and cut the corporate income tax rate. Counties would also have more responsibility and flexibility in funding school and road construction. Legislators should look for savings in the state budget to pay for schools, roads, and Medicaid before passing the cost to taxpayers.

Health insurance should act like insurance, not a payment plan for regular medical needs. It should also be available for individuals to purchase in a deregulated market. A high-risk pool for health insurance, as in other insurance markets, would keep premiums affordable for the small percentage of those with significant care needs without raising costs for the entire market. The state of North Carolina should finance any high-risk pool entirely through the General Fund and existing taxes, rather than assessments on insurers or other hidden taxes. Money for a high-risk pool can come from Medicaid savings.

The General Assembly is often said to have "tax and spend" policies, but its pattern is one of "spend and tax" policies. During economic booms, tax revenues increase and legislators fund new programs that cannot be sustained during an economic bust. When the bust comes, legislators raise taxes to pay for those new government programs.

As the debate about immigration continues, all involved need to be aware of the limitations of existing statistics. Hispanics are about 6 percent of the state’s population and growing. Illegal immigrants make up an estimated 45 percent of the state’s Hispanic population, but 76 percent of recent entrants. The economic and government service usage effects of Hispanics on the state are also significant, but the impact of illegal immigrants is less clear.

Economic growth has given the General Assembly $2.4 billion more to spend. Higher sales and income taxes have contributed to this surplus. The Senate adds $1.4 billion in new spending, and relies on nonrecurring revenues for $400 million in new recurring obligations. Drawing on the John Locke Foundation’s Freedom Budget 2005, this paper offers an alternative budget that would end the sales tax and income tax increases from 2001, eliminate Medicaid’s burden on counties, and keep spending growth to 4.3 percent – all within the limit of population growth and inflation.

State government needs pay its employees differently if it wants to keep the best of them. The average state employee earns as much as the average employee nationally, but across-the-board pay raises fail to reward employees for performance. Employees who choose to work for the state are more risk averse and may stay despite a lack of productivity. But these employees merely substitute unseen political risk for visible market risk. The General Assembly should consider more pay for performance and portable benefits for state employees.

Budget proposals from Gov. Mike Easley and the Senate put state spending back on the path of rapid growth last seen in the late 1990s. After inflation, the state will spend 10 percent more per resident on operations in the FY2006-07 than it did just three years ago. Real spending per resident is up 23 percent in the last decade. If the General Assembly had restricted spending growth to inflation and population growth over the decade, the General Fund operations budget would be $3.4 billion less than proposed.