08/02/09 — Legislators split along tax lines on budget

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Legislators split along tax lines on budget

By Steve Herring
Published in News on August 2, 2009 2:00 AM

Wayne County's legislative delegation agrees that the open-ended extension of the continuing budget resolution approved Thursday was necessary to keep the state going, and they share an optimism that a budget could be ready as early as next week for their consideration.

The stopgap measure restricts spending to 84 percent of 2008-09 levels -- a provision that Republicans Rep. Efton Sager of Wayne County and Sen. Davis Rouzer of Johnston County found attractive. Sen. Don Davis, D-Greene, also voted in favor of the extension.

Rep. Larry Bell, D-Sampson, supports it as well, but was not at the session when the vote was taken.

It was the first time that Sager has voted for a continuing resolution, he said, because it held the state to 84 percent of the last year's budget.

"The other two times I voted no, primarily because I was confident it would pass, and I was upset," he said. "We should be through by June 30 because we expect local governments to be through by June 30.

"I think this is going to force them to finish the budget because they want additional taxes, and they don't have the revenue package in place."

Rouzer said he supported the resolution to keep the government operating -- and operating at 84 percent of last year's level "so there are no tax increases that would hurt the economic recovery."

Bell added that he was hopeful the legislature's work would soon be done.

"I support it," he said. "We need to do some more work on the budget. We hope to finish next week or at least we are going to try."

Davis said he voted for the resolution simply as a way to provide time for budget negotiators to continue their work.

"I think we are very close," Davis said. "We just need a few extra days. I hope we will be able to deliver a budget as soon as possible and draw a close to this year."

Sager said the session could end within the next two weeks, maybe even this week.

"If nothing else, lawmakers could return home allowing conferees to continue their negotiations. Lawmakers would be called back when a budget was ready for adoption," he said.

Not unexpectedly, though, local legislators are split along party lines as far as the tax package is concerned. Sager and Rouzer oppose the taxes, and say that it is time for the state to reassess how it does business.

Bell supports the measure, arguing that failure to do anything could cause more damage than the taxes.

Davis said the budget is still too fluid and that he needs to see the final proposal before committing to how he would vote. Davis added he would like to see the state evaluate its tax code -- something that has not been done since the Great Depression.

As proposed, a 2 percent surcharge would be tacked onto taxes owed by couples whose taxable income falls between $100,000 and $250,000. The surcharge would be 3 percent for couples whose income exceeds $250,000.

For individuals, the 2 percent surcharge would be applied to those earning $60,000 to $150,000 and 3 percent for those earning more than $150,000.

Couples whose taxable income is less than $100,000, and individuals whose taxable income is less than $60,000 would not have to pay a surcharge. According to General Assembly data, 87 percent of North Carolina taxpayers would not be affected by the plan.

However, even that is still unacceptable to Sager and Rouzer who said they would not support any increase.

They both argue that the surcharge is the worst thing the state can do as it struggles to recover from the recession.

"I don't think there is anything better we could do to impede the economy than a surcharge, that is a tax on a tax," Rouzer said. "As legislators we have gone to a new level when we start taxing taxes.

"It is really just an impediment to economic recovery and job creation. I definitely will vote against it. I think we have gone about this all the wrong way. I think we need a complete overhaul to operate at 16-17 percent less than what it (budget) is today."

Even as the economy gets better, revenues to the government will continue to lag, Rouzer said.

"The structural deficit for the next two to three years will grow this budget. We are just papering over it. I think the structural deficit we deal with next year will be bigger. These tax increases do nothing but hinder recovery. This economy is really struggling."

While he favors looking for ways to cut budget fat, Rouzer said rather than go back in to cut that, "we need to completely rethink our government structure and how it operates today. If we do not do it right now the structural deficits will haunt us for years to come."

Davis agrees that the state needs to look at ways to improve efficiency in government.

"There have been no major changes to the state's tax code since the Great Depression," he said. "Maybe it's time to look overall at the tax code -- look at it in a comprehensive way, but in a revenue neutral manner."

Sager said he did not know all of the particulars about the proposal and complained that the budget process is "too secretive."

As for the tax package, "I don't like any of it," he said. "The Republican Party in its press releases has indicated there are areas that can be cut. We are operating on last year's budget and getting along.

"I will not vote for a tax increase anywhere. It makes no sense to tack on a surcharge to a person's income tax. That is particularly true when the state is trying to attract new industry. It is counterproductive."

He reiterated previous statements that if a bill does not make sense then, "I don't vote for it.

"I'd like to see overall the Legislature look at evaluating the efficiency in government as a way to save money and avoid taxes."

But Bell said these tax increases are necessary.

"I do support those taxes," he said. "When you have to cut health, education and human services, if you don't do something, it will be worse than anything else. I think the economy is recovering. We just cannot shut down North Carolina. Anything we can do for school operation I will do that. It would be worse than a surcharge if we do not do something trying to preserve what we can."

Lawmakers have been able to cut about 45 percent of the deficit, he said. Now, they need to come up with other revenues to make up the difference to keep the state operating.

The taxes and cuts are hardships on everyone, he said.

"We have got to find a way to get the revenue without making it so hard on everybody," he said. "If somebody can think of a better way, then I'd like to know how -- without taxes. I would like to see how it is done."

Bell thinks that if the conferees can agree then legislators will, too.

"I think it will pass," he said.

In addition to the income tax surcharge, the plan includes a one-cent increase to the sales tax rate. Both would expire after two years.

Sager said he would be more open to a sales tax increase. Bell said he supports it as well.

"I have always said, even when I was a (Wayne County) commissioner, that it (sales tax) is the fairest," Sager said.

But, he added, "I hope we stay away from taxing services."

He also said Internet sales are unlikely to end up being taxed, mainly because they are difficult to collect.