Imminent Key Decisions on Tax Policy
04/24/2007 | 01:29 PM
By: Rep. Paul Stam
Tuesday, April 24, 2007
Expiration of Temporary Taxes:
In 2001 Gov. Easley and the General Assembly imposed two “temporary taxes” – a higher sales tax rate and a higher income tax rate. Despite their “temporary” nature Governor Easley and subsequent Assemblies have repeatedly extended them - even last year when there was $2.4 billion above projected revenues available to allocate.
This year the Governor proposes to continue these temporary taxes and to continue to use them to pay for more spending programs. The current year’s budget is a 9.7 percent spending increase from the previous year which itself was an 8 percent spending increase over the prior year. This rate of increase is not sustainable. This year the Governor proposes a 6.4 percent increase in spending over the prior year, although with his bond program it is actually over 7 percent.
These two temporary taxes should not be continued at these higher rates. The sales tax as of December 1st (the combined state and local rate) is now 6.75 percent (or 7.25 percent if you live in Charlotte-Mecklenburg.) North Carolina retailers are at a competitive disadvantage since Virginia and South Carolina rates are running at 5 percent. Sales taxes are highly inefficient from the point-of-view of the taxpayer since they are not deductible against federal income taxes costing them 15 percent. We should stop relying on this extra ¼ cent and allow our statewide sale tax burden to drop to 6.5 percent this July as the Democrats promised last year.
The extra quarter percentage point on the state income tax rate puts us at 8 percent, the highest income tax rate in the southeast. This compares to 5.75 percent in Virginia, 7 percent in South Carolina, zero percent (except for those who are taxed on income derived from dividends and interest) in Tennessee and 6 percent in Georgia.
I am going to ask the House Republican Caucus that we vote against any more extensions of these taxes, even if those extensions are part of the budget.
Even without reinstating these “temporary” tax rates in the budget spending could still increase 4.80 percent (Source: NCGA Fiscal Research, April 20, 2007). This is well in excess of the increase in population of 1.5 percent during the year plus inflation of 2.3 percent.
This would reduce by $296.5 million (or $375.3 on an annualized basis) next year’s availability consisting of $259 million ($288 million annualized) in sales tax and $37.5 million ($86.9 million annualized) in personal income tax.
We note that on March 14, 2007 the Democratic members of the North Carolina House of Representatives appeared before you and stated:
So far the only program eliminated was the North Carolina State Surplus Property Commission at about $150,000 a year. Certainly the Democrats recognize that in a $20 billion budget not every existing program is a priority. We wait with anticipation the results of their eliminations and consolidations.
High Risk Insurance Pool:
We recognize that there are some whose chronic health conditions have made them uninsurable in the insurance market. Therefore I support the High Risk Insurance Bill (House Bill 265).
In the Finance Committee we failed (by 13-15) to put the plan on a much sounder footing - to have the subsidy provided by the general fund rather than through assessments on certain health care insureds at $2.00 per person per month. If the Democrats don’t agree to that change we will propose a similar motion again on the floor for several reasons:
Tuesday, April 24, 2007
Expiration of Temporary Taxes:
In 2001 Gov. Easley and the General Assembly imposed two “temporary taxes” – a higher sales tax rate and a higher income tax rate. Despite their “temporary” nature Governor Easley and subsequent Assemblies have repeatedly extended them - even last year when there was $2.4 billion above projected revenues available to allocate.
This year the Governor proposes to continue these temporary taxes and to continue to use them to pay for more spending programs. The current year’s budget is a 9.7 percent spending increase from the previous year which itself was an 8 percent spending increase over the prior year. This rate of increase is not sustainable. This year the Governor proposes a 6.4 percent increase in spending over the prior year, although with his bond program it is actually over 7 percent.
These two temporary taxes should not be continued at these higher rates. The sales tax as of December 1st (the combined state and local rate) is now 6.75 percent (or 7.25 percent if you live in Charlotte-Mecklenburg.) North Carolina retailers are at a competitive disadvantage since Virginia and South Carolina rates are running at 5 percent. Sales taxes are highly inefficient from the point-of-view of the taxpayer since they are not deductible against federal income taxes costing them 15 percent. We should stop relying on this extra ¼ cent and allow our statewide sale tax burden to drop to 6.5 percent this July as the Democrats promised last year.
The extra quarter percentage point on the state income tax rate puts us at 8 percent, the highest income tax rate in the southeast. This compares to 5.75 percent in Virginia, 7 percent in South Carolina, zero percent (except for those who are taxed on income derived from dividends and interest) in Tennessee and 6 percent in Georgia.
I am going to ask the House Republican Caucus that we vote against any more extensions of these taxes, even if those extensions are part of the budget.
Even without reinstating these “temporary” tax rates in the budget spending could still increase 4.80 percent (Source: NCGA Fiscal Research, April 20, 2007). This is well in excess of the increase in population of 1.5 percent during the year plus inflation of 2.3 percent.
This would reduce by $296.5 million (or $375.3 on an annualized basis) next year’s availability consisting of $259 million ($288 million annualized) in sales tax and $37.5 million ($86.9 million annualized) in personal income tax.
We note that on March 14, 2007 the Democratic members of the North Carolina House of Representatives appeared before you and stated:
“1. Strengthen people’s confidence in a government that works for them.
•Eliminate government waste through results-based budgeting.
“We will closely examine the needs for our state to ensure every tax dollar is spent wisely an efficiently as possible. Our budget writers will first look for ways to eliminate or consolidate existing state programs before we create and fund new programs.”
"A Plan for One North Carolina"
By: Democratic Members of the N.C. House of Representatives
Wednesday, March 14, 2007
So far the only program eliminated was the North Carolina State Surplus Property Commission at about $150,000 a year. Certainly the Democrats recognize that in a $20 billion budget not every existing program is a priority. We wait with anticipation the results of their eliminations and consolidations.
High Risk Insurance Pool:
We recognize that there are some whose chronic health conditions have made them uninsurable in the insurance market. Therefore I support the High Risk Insurance Bill (House Bill 265).
In the Finance Committee we failed (by 13-15) to put the plan on a much sounder footing - to have the subsidy provided by the general fund rather than through assessments on certain health care insureds at $2.00 per person per month. If the Democrats don’t agree to that change we will propose a similar motion again on the floor for several reasons:
- Transparency – so that we know what the program is costing.
- Equity – An assessment on some insureds is possibly the most regressive way to fund this public service. Because of the uncertainty as to whether Erisa will even allow assessments on their policies this amendment puts the pool on a much sounder footing. On an annualized basis the appropriation would be about $20 million a year which is 1/10 of 1 percent of the budget this year. If this is a priority, surely the Democrats can find room for it in a $20 billion budget.