Politics & Government
5:00 am
Wed March 9, 2011

Sales Tax A Key Part Of Budget Debate

Whether to continue a temporary increase in the sales tax is a key point of debate between legislative Republicans and Democratic Governor Bev Perdue as they work to close the gap in the state budget. Jessica Jones reports.

North Carolina is facing one of the largest potential budget shortfalls in its history. Right now it amounts to 2.4 billion dollars, but that number could change. Two years ago, the Democratic-controlled legislature enacted temporary tax increases- including a one cent sales tax increase- to help balance the state budget. But Republican leaders who’re now in control say they don’t need the tax increase this time.



The temporary taxes North Carolinians currently pay consist of a one percent increase in the sales tax and a surcharge on income taxes for some higher earners. Phil Berger is the President Pro Tem of the Senate:

"There was a promise made to the people of North Carolina by the Democratic majority two years ago, a promise made to the people of North Carolina by the governor two years ago. That the taxes they raised two years ago were a temporary measure to address a budget situation."

Revenue from those tax increases along with federal stimulus money helped balance the state budget by bringing in about 2.9 billion dollars. But the federal government isn’t handing out stimulus money this year. And the sales and income tax increases are set to expire July first. Berger says rather than continuing those increases, the best thing to do is cut spending:

"And that’s- that’s where we will find the savings that will be necessary in order for us to get our spending on the same level as our revenue. I mean this- this is not a surprise, folks have known this is coming."

Berger and other Republican leaders have made it no secret they want to streamline state government. They call it “rightsizing.”
The largest slice of the state budget pie is education- that’s where Republican leaders want budget writers to cut more than 760 million dollars. Berger says North Carolina should be able to do more with less:

"Right now North Carolina as I understand it if you rank us in terms of education compared to other states, I think we’re like 43rd- so that’s the current system. If the governor wants to defend being 43rd, she can do that. We think we can do better, and we think we can do it by expending fewer dollars."

Berger couldn’t cite which educational ranking he was referring to. But Democrats say the magnitude of the cuts Republican lawmakers would make without continuing the temporary tax increase would be disastrous, especially to community colleges and universities. Republicans have not released a list of specific cuts yet, but they are considering caps on enrollment at community colleges and univerisities. Democrat Ray Rapp of Mars Hill is a former co-chair of the appropriations subcommittee:

"I mean you can’t make those numbers work. And as somebody who’s worked with this budget for the last eight years, you can’t do that. Smoke and mirrors, everything else, you can’t do it."

Governor Perdue proposes to keep part of the temporary sales tax increase, although she also recommends cuts of as much as six percent to universities, community colleges, and public schools. Rapp says that seems reasonable:


"And I will go back to either the governor’s proposal on keeping the three quarter sales tax, keep the one cent sales tax, and we don’t have to make these draconian cuts."

It’s unlikely Republican lawmakers will change their minds about extending the temporary tax increase. They passed a bill recently to cut incentive money for job creation in order to ease the potential budget shortfall. But the governor vetoed that. Ran Coble heads the North Carolina Center for Public Policy Research, a non-partisan think tank in Raleigh:

"The Republicans have said they want to take a cuts-only approach, and I fully expect them to do that. Will the governor then veto a budget that may have some things she likes and some things she doesn’t like, or will she make it a standoff over funding for education, that’s what we’ll see in mid-April I guess."

Republican lawmakers have set April 22nd as the day the House will vote on a budget. As for the sales tax, Coble believes voters are split over whether lawmakers should extend it. The results of two partisan polls conducted recently fall predictably along party lines. A third poll conducted by Elon University puts opposition to extending the sales tax increase at 53 percent.

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