sales tax

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.

RALEIGH – Legislative leaders might try to use sleight of hand and a series of political deals to raise taxes by nearly $1 billion. That’s the conclusion of a new…

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.

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.

The North Carolina General Assembly faces a critical choice about the state’s fiscal direction: whether to extend nearly $500 million in tax increases that politicians had previously promised were “temporary,” or to find additional savings to balance the FY 2003-04 budget. Since the taxes were originally imposed in 2001, North Carolina’s business growth has fallen short of the Southastern average and its tax rates remain among the highest in the region and the nation. And according to the Tax Foundation, North Carolina's state/local tax burden has risen to 25th in the nation in 2003, up from 36th in 1998.

With news of a worsening state budget and a weakened state economy, Locke Foundation analysts have updated last year's alternative budget with new projected savings and tax changes for FY 2002-03. The resulting Changing Course V budget would eliminate the deficit, repeal last year's hikes in sales and income taxes, stimulate the economy through additional tax relief and highway investment, and protect highpriority items such as public safety and classroom teachers.