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RALEIGH — The good news: Sales taxes and income tax rates would drop under a finance package state senators started examining Wednesday.

The bad news: North Carolinians would end up paying the state more anyway.

“We’ve got a short-term fiscal crisis on us and it has run smack-dab into the long-term problems we’ve got with the state revenue system,” said Sen. Dan Clodfelter, a Charlotte Democrat.

North Carolina last overhauled its tax system in the 1930s, when agriculture and textile mills provided many of the state’s jobs. Since the 1990s, there have been calls to update the state’s tax system to better account for new high-tech and service industries.

Those calls became more urgent this year when, for the second time in a decade, the state’s tax collections plummeted as the economy slowed. Gov. Bev Perdue, a Democrat, and legislators are trying to bridge a budget deficit that is running into the billions of dollars.

The Senate and its Democratic leaders this month passed their version of the state budget with a $500 million hole in it, promising to present a tax plan to fix it. The new proposal would close that gap while putting the state in better long-term stead, its authors say.

Clodfelter added that one of the primary objectives of the Senate budget proposal was to have a more stable tax system that was less prone to wild revenue swings. Among the changes:

• State sales tax would drop to 6 percent in most places, but it would be applied to more items including software downloaded over the Internet and services such as repairs to large home appliances.
• Income tax rates would drop but the state would allow fewer deductions and loopholes.
• Excise taxes on cigarettes would rise 15 cents a pack, and taxes on alcohol would rise.

Even with those details in place, legislators have not drafted an actual bill and still have many specifics to work out. Some are skeptical that such a sweeping change can take place when the government faces growing deficits.

“It’s time to re-examine the tax structure. I don’t know if this is the perfect time of if you’ll see anything come this session,” Perdue said Tuesday after speaking to a small business group. “But it is healthy to have this kind of conversation, and I admire the General Assembly for doing that.”

Sen. Phil Berger, an Eden Republican, said that many of the individual steps in the proposal make sense.

But he said the changes were still aimed at taking more money away from private citizens, amounting to a $600 million or more tax increase on the state as a whole.

“Ultimately, they’re doing it for the wrong reasons,” Berger said. “This is a tax increase. You can’t dress it up as anything else.

A Senate vote on the bill is not expected for at least two weeks, Clodfelter said. And the House is still working on its own tax and spending package.

Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com.