Press Release

Final N.C. budget plan needs no tax hike

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RALEIGH — State budget negotiators can scrap proposed tax and fee increases while still avoiding the most drastic budget cuts they’ve threatened to make during the past few weeks. The John Locke Foundation’s chief budget analyst explains how in his new “Can-Do Budget.”

Click here to view and here to listen to Joseph Coletti discussing this Spotlight report.

“State House budget writers offered their colleagues a false choice,” said the budget’s author, Joseph Coletti, JLF Fiscal and Health Care Policy Analyst. “To sell a budget plan with $870 million in tax and fee increases next year, those budget writers scared colleagues by implying that the only alternative was a budget with drastic, debilitating cuts to essential services. In a little more than 25 pages, the Can-Do Budget offers a third alternative.”

“This budget would redirect revenues from the Tobacco Master Settlement to state government’s General Fund and eliminate $125 million in nonteaching centers in the University of North Carolina system,” Coletti added. “It also would remove corporate welfare programs such as the N.C. Biotechnology Center, Job Development Investment Grants, and tax carve-outs like the recently approved tax break for Apple Computer.”

Coletti’s alternatives could come in handy for the negotiators who craft the final state budget plan. A 64-53 vote shortly after midnight Saturday morning secured approval of the House plan. If the Senate rejects the House budget as expected, a conference committee of House and Senate leaders will try to draft a final compromise before the new budget year starts July 1.

“There is still time for the conference committee to bring openness, responsibility, accountability, and fairness to the state budget,” Coletti said. “Committee members can start by looking at the recommendations in the Can-Do Budget.”

The Can-Do Budget plan avoids raising taxes. “There’s no good reason to hit North Carolina families in the middle of an economic slump with new taxes that make the state an even less attractive place for workers, shoppers, investors, and entrepreneurs who create jobs,” Coletti said. “Struggling North Carolina families would pay higher sales-tax rates, and the state would force them to pay those higher rates on a wider range of purchases.”

Raising income taxes for the state’s highest earners also would hurt the North Carolina economy just when it needs a boost, Coletti said. “Most of these taxpayers are the type of people North Carolina needs to create the jobs that will help the state’s economy rebound,” he said. “Taxpayers with all levels of income win when these highly skilled and productive professionals, entrepreneurs, and innovators decide to live, work, and create jobs here. The whole state loses when overly high income tax rates drive them away.”

Supporters say the House budget’s proposed tax increases would help state government avoid making $4 billion or more in budget cuts. “The problem with their argument is that they’re using inflated numbers,” Coleti said. “That $4 billion figure is tied to a fictional $22 billion continuation budget projection drafted last year — before the economic downturn started to take its toll.”

“Most of the ‘cuts’ associated with that $4 billion figure are already made,” Coletti added. “The government made those cuts to shore up the current budget. The actual amount of cuts necessary to balance the new budget is much smaller.”

Instead of acknowledging the facts, House budget writers paraded a list of programs that would face the budget ax unless their colleagues agreed to tax increases, Coletti said.

“Some of the items on the list are services the fiscal conservatives at the John Locke Foundation never would have contemplated, such as cutting mental health services by $80 million and robbing local school districts of $90 million in building and transportation funds,” he said. “Meanwhile, House budget writers avoided adopting common-sense budget savings we have long advocated.”

House and Senate negotiators’ tight timetable should prompt them to give the Can-Do Budget a serious look, Coletti said. “If lawmakers really want to finish a budget deal in the next two weeks to meet the July 1 deadline, this alternative offers a no-new-taxes plan that funds the highest priorities of North Carolina government with available revenue.”

Joseph Coletti’s Spotlight report, “The Can-Do Budget: The impossible takes a little longer,” is available at the JLF Web site. For more information, please contact Coletti at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].

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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.