JLF Research Archive
Showing items 176 to 200 of 236
Despite a $1.3 billion deficit, Gov. Mike Easley will propose up to 6 percent higher spending in his 2005-06 budget, even with small proposed savings in most agencies. Medicaid and education spending have grown rapidly, and will continue apace. Instead, the governor plans to keep the temporary half-cent sales tax and add a large cigarette tax to pay for higher spending. This is no way to address what the Fiscal Research Division calls a structural budget deficit.
State lawmakers are scheduled to meet in Raleigh today to consider a package of tax breaks and other incentives designed to lure a Dell Computers plant to North Carolina. While politicians often portray such deals as necessary to promote growth and job creation, they serve to transfer resources from existing firms, sometimes even competitors, while failing to address tax and other problems afflicting businesses of all sizes in the state. A good place to start in improving the state’s business climate would be to reduce marginal tax rates.
As the North Carolina Senate prepares to vote on its proposed 2004-05 budget
plan, it is important to keep in mind that an accounting change included in
the plan has the effect of masking the magnitude of the proposed increase.
State legislators are currently considering proposals to issue hundreds of millions of dollars in additional debt without seeking voter approval. The billions of dollars worth of bonds and other debt already approved since 1996 have more than quadrupled the state’s debt service and represent as much as a third of the fiscal impact of the tax hikes passed by the General Assembly since 2001. It’s no wonder politicians are wary of asking voters for more. But that’s why they should.
As the 2004-05 budget process continues, policymakers should use regional and historical benchmarks to identify where to look for savings. Among major budget items, North Carolina spending on K-12 education and law enforcement is at the regional average but its Medicaid and higher-education expenses are higher than in comparable states. Reasonable restraint would save enough money to repeal last year’s tax hikes and catch up on deferred repairs and renovations.
For the first time since 2001, Gov. Mike Easley is proposing a budget plan that does not include new tax increases. However, his 2004-05 plan does contain hundreds of millions of dollars in new spending financed by previous, costly tax hikes on North Carolina families and businesses. A better fiscal choice would be to eliminate low-priority items from the budget and repeal prior sales and income tax increases. The best choice would be to implement JLF’s Freedom Budget plan.
Some state politicians are touting the results of an Ernst & Young study that purports to rank North Carolina’s business taxes as among the lowest in the nation. But this flawed study ignores basic principles of public-finance economics and most of the taxes that influence business decisions. More accurate studies that examine all relevant taxes and all types of businesses suggest that North Carolina’s tax rates are high in regional rankings, thus discouraging economic growth.
The North Carolina General Assembly is returning to Raleigh for a special session on economic development. Rather than rush to push targeted tax credits and incentives for a few, lawmakers should pursue a broader examination of the factors under their control that really influence state economic growth. The wrong direction is to enact any set of policies that increase the state bureaucracy or the ranks of lobbyists seeking to arrange special “deals” for their industrial clients.
A House-Senate compromise budget for the 2003-05 biennium will cost North Carolina taxpayers another half-billion dollars a year and do little to stem the government’s long-term growth. General Fund spending will actually rise 3 percent in FY 2003-04 and 5 percent in FY 2004-05, with most of the increase over the next two fiscal years concentrated in health and human services, debt service, the UNC system, and subsidies to nonprofits. North Carolina deserves better.
State lawmakers are considering a proposed constitutional amendment to allow local governments to issue bonds without a public vote to construct convention centers, sports arenas, and other “economic development” projects. Careful research of these programs in other states reveals that they do not enhance a community’s economic growth over time. Moreover, they weaken governmental accountability to a voting public that does not favor subsidizing private businesses.
Defenders of North Carolina’s fiscal policies over the past two years argue that the state’s massive increases in sales, income, business, and other taxes were just part of a national trend. But the available data put North Carolina near the top in tax increases over the past two years, with more than $1 billion in annual fiscal impact. The state’s quick recourse to higher taxes may be one reason why its economy has been trailing the rest of the region and nation since mid-2001.
The North Carolina Senate is considering a budget plan for the 2003-05 biennium that would compound the House’s error in raising taxes in the midst of a slack economic recovery. While proponents of the plan claim that it would help families with children, the reality is that it would impose higher taxes on family purchases of such items as clothes, furniture, candy, soft drinks, and health insurance — in order to fund a $726 million increase in state spending, or 5.1 percent.
Political observers may welcome the North Carolina House’s uncharacteristic speed in devising its 2003-05 budget plan by its previously announced deadline of Easter weekend, but state taxpayers are unlikely to view its nearly $860 million in extra taxes over the next two fiscal years as timely given the weakness of the state’s economic recovery. By working harder to identify budget savings, lawmakers could have avoided the tax increase without adversely affecting teachers, prisons, or other core services of state government.
The North Carolina General Assembly faces a critical choice about the state’s fiscal direction: whether to extend nearly $500 million in tax increases that politicians had previously promised were “temporary,” or to find additional savings to balance the FY 2003-04 budget. Since the taxes were originally imposed in 2001, North Carolina’s business growth has fallen short of the Southastern average and its tax rates remain among the highest in the region and the nation. And according to the Tax Foundation, North Carolina's state/local tax burden has risen to 25th in the nation in 2003, up from 36th in 1998.
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.
Gov. Mike Easley has proposed an annual cap on the growth of state spending in North Carolina that would be tied to personal income growth. In considering the idea, lawmakers should examine recent data that show state spending caps to be effective particularly if they rebate excess revenues to taxpayers and enjoy constitutional, rather than just statutory, authority. Without a spending cap, it is likely that fiscal discipline will disappear as the state’s economy recovers.
North Carolina lawmakers are once again coming to Raleigh to grapple with a projected deficit exceeding $1 billion. A close examination of fiscal trends demonstrates that excessive spending, not inadequate revenue, is the cause and that the state budget continues to be bloated with wasteful or low-priority expenditures. Policymakers must show courage, be willing to apply fundamental principles, and target major areas of state spending for savings and reform.
By the Numbers 2003: What Government Costs in North Carolina Cities and Counties is the fourth in a series of studies that examine local taxes, fees, and charges in every North Carolina communities. Charlotte ranks first among major cities in combined local government costs per person, with Hickory, Durham, Wilmington, and Cary rounding up the top tier. Among large urban counties, Durham and Mecklenburg have relatively high costs as a percentage of personal income.
After months of delay, the state legislature has enacted a revised FY 2002–03 budget that differs little from the plan originally proposed by Gov. Mike Easley in May. Lawmakers adopted nearly all the governor's $543 million raid on local government reimbursements and highway funds, changing only what percentage will be made up with a sales tax increase. Taxpayers are the big losers—entering the second of what promises to be three straight years of huge tax hikes.
As House and Senate leaders negotiate a final budget package for FY 2002-03, they should resist the usual temptation to "logroll" — to add in spending items favored by the other side — and instead accept the lower of the two chambers' previously approved figures for every department as well as the higher of the two chambers' previously approved fund transfers. With such "reverse logrolling," lawmakers could balance the state budget without a tax increase.
At this writing, the N.C. House is considering a revised General Fund budget of $14.3 billion, balanced largely by raising state taxes by $166 million, raiding $255 million from highway funds and $156 million from local governments, and achieving net budget savings of $478 million. Unfortunately, the news for taxpayers is likely to be worse next year, given the use of some $666 million in one-time money for expenses likely to recur — setting the stage for another tax increase.
Gov. Easley's new incentives proposal would put political appointees into the position of doling out special tax breaks that amount to grants of taxpayer money to private businesses. Because of the unpredictable nature of a free-market economy, such a policy cannot claim to boost overall economic growth. A better policy would be to reduce North Carolina sky-high marginal tax rates on personal income, investment, and capital gains - which are among the highest in the country.
The N.C. Senate is debating its proposed budget, which would reduce authorized FY 2002-03 spending by $585 million. Most of the $1.4 billion budget gap, however, would be closed with one-time revenues, including tax hikes and fund diversions, that will reportedly create a recurring deficit in FY 2003-04 approaching $800 million. Some leaders propose closing that gap with tax hikes, too, meaning that the total annual tax burden will have grown $1.4 billion from 2001 to 2003.
The state legislature is currently considering the idea of "decoupling" North Carolina's income tax code from the federal tax code in order to avoid implementation of several tax reductions associated with a federal economic-stimulus package. But North Carolina's weakened economy desperately needs the $258 million boost that adjusting state taxes on business and personal investment would provide. Policymakers could offset any revenue loss by reducing spending.
Gov. Mike Easley's proposed budget for FY 2002-03 includes $250 million in revenue from a state-run lottery that has yet to be enacted. Among many legitimate objections to the administration's idea are that expected net revenue is inflated by between 37 percent and 62 percent - creating a hole in the budget of as much as $96 million — and that the administrative costs of the lottery tax exceed both the cost of alternative taxes and any revenue "loss" to out-of-state lotteries.