Budget Proposal Increases Taxes, Cuts Spending

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Budget Proposal Increases Taxes, Cuts Spending

Special Report - June 9, 2009
The North Carolina House budget writers today rolled out a $17.8 billion budget proposal and a $940 million tax increase package to help balance a $4 billion budget gap in the State budget. While the proposed budget incorporates cuts to everything from education to social services, the tax package would increase existing taxes and add new taxes.

Both the state’s sales tax and income tax rates would increase under the proposal. A variety of services, warranties, installations, repairs, movies, and entertainment would all be subject to new taxes. The package also includes franchise taxes on LLCs, changes to the bank interest tax deduction, and two new income tax brackets. A cigarette tax increase was removed via amendment in committee Tuesday morning and by afternoon, House Democrats were meeting to try and control the damage. Proponents of the new taxes argue that they are needed to offset budget cuts to education and social services as well as to close a $1.2 billion shortfall expected in 2012 when federal stimulus money for new and expanded programs will cease.

The House budget included reductions in payments to Medicaid providers and cuts in services to the mentally ill and education as well as calls for voluntary furloughs by state employees and teachers. Over 100 positions at the Department of Public Instruction would be eliminated over the next two years, compared to the 400 positions the Senate budget sought to eliminate. Classroom size would increase by two students this year and three students next year, eliminating 8,000 teaching positions. Supplemental funding for low-wealth and small county funding would be reduced. The budget also calls for the elimination of a handful of tests in public schools and an evaluation of the state’s testing policies to look for long-term revisions. Corporate tax revenues that are currently joined with a portion of lottery revenues to fund capital building funds would be redirected to other education budget items.

Passage of the tax proposal in the House Finance committee could impact the projected revenues on which the current budget proposal is based. The Finance committee and the House Appropriations committee both expected to continue discussions and consider amendments Tuesday afternoon and evening. Any budget passed by the House will require negotiations between the House and Senate before it can be sent to the Governor for a signature. The North Carolina Constitution requires that the legislature pass a balanced budget every two years.