taxes

According to state economists, North Carolina will face another budget deficit in FY 2001-02 of between $450 million and $900 million. The state's economy, weighted down by high taxes and poor public services, continues to lag behind the rest of the country. Unlike last year, policymakers cannot exempt such big-ticket items as Floyd relief, tobacco-settlement funds, universities, Medicaid, and bonds from scrutiny - and they should consider repealing last year's tax hikes.

A report released last week by the North Carolina Progress Board contained hundreds of long-term goals for the state. But the text was overshadowed by the comments of board member and UNC-W Chancellor James Leutze, who said the report showed North Carolina would never make it to the top tier of states without tax increases. Leutze's remarks were ill-timed and ill-informed but reflect the conventional wisdom about taxes and social progress. It’s wrong.

North Carolina's 1998-99 state budget grew by between 10 percent and 11 percent (depending on the measurement used) compared with the national average for state budget growth of only 5.4 percent. This follows a similar pattern last year. Growth in spending on Medicaid and education fueled North Carolina's exceptional budget increase. Overall, North Carolina spends more of its budget on education and correction, and less on Medicaid, than the average state. This mostly reflects differences in responsibilities given to local government.

The lengthy budget negotiations between House and Senate this year resulted in a compromise that gave the Senate its spending priorities this year and the House its tax cuts in future years. Overall, when accounted for correctly, the state General Fund budget will top $13.1 billion in FY 1998-99, representing an 11 percent increase from last year. Spending growth outweighs tax cuts in FY 1998-99 by a ratio of 25 to 1 — but the picture improves somewhat in the out years, when House-sought cuts in sales and inheritance taxes are phased in.

State lawmakers will consider today a revised tax and spending plan for the 2001-03 biennium that promises to shove an already teetering economy, buffeted by layoffs and the prospect of war, into a full-blown and painful recession. Its massive tax hike will fuel a healthy increase in wasteful state spending and help to push the state’s tax burden well above that of Massachusetts, California, and all the Southeastern states — and higher than the national average for the first time.

The ghastly terrorist attacks in New York City and Washington will have overwhelmingly negative consequences for the nation’s economy, despite the foolish suggestions of some that it will result in a net stimulus. North Carolina’s economy promises to be particularly hard-hit by troop deployments and faltering investor and consumer confidence. Now is the time for state leaders to dedicate themselves to strengthening the economy, not weakening it through massive tax hikes.

A new plan from N.C. House Democrats to increase state and local taxes by another $633 million in FY 01-02 would further damage North Carolina's already weakening economy. If passed, the tax hikes would push North Carolina's tax burden higher than the national average for the first time in history, and 12 percent higher than the regional average. Our tax burden would far exceed those of such states as California, Illinois, Maryland, Massachusetts, and Pennsylvania.

The North Carolina House is debating its version of a 2001-03 state budget this week. Although imposing only a $6 million tax hike in contrast to the $233 million tax increase included in the Senate budget House leaders still managed to increase General Fund spending by 4.4 percent in the coming fiscal year, relying on increased collections of delinquent taxes, interagency transfers, and debt-service savings to balance the books. Now the budget battle really begins.

Some state lawmakers are discussing a plan to give local governments the authority to raise their sales taxes by up to 1 penny while simultaneously eliminating state tax reimbursements. While it is true that many counties are raising property taxes this year, most have not been starved for revenue during the 1990s. More importantly, the state can give the same assistance to localities without raising taxes by increasing flexibility and assuming more responsibility for Medicaid.

North Carolina faces significant fiscal and economic challenges over the next two years. But it need not resort to higher taxes, a state-run lottery, higher debt, or gimmickry to balance its budget. Nor does North Carolina need to skimp on crucial needs such as education and highways. By setting firm priorities within state government, eliminating unnecessary or duplicative programs, and charging users of some services a reasonable price, state leaders can generate sufficient savings to invest in the future needs of the state.