Taxes would rise in budget deal
RALEIGH — Negotiators for the N.C. House and Senate have reached a tentative agreement on raising taxes, breaking a stalemate toward the passage of the three-weeks-overdue state budget.
Although there is not a final agreement, negotiators from both sides said there is “agreement in principle” to raise a temporary income tax surcharge and increase the sales tax rate.
Taxes on tobacco products and alcohol would also rise, and certain purchases made over the Internet that currently escape taxation no longer would be able to evade collection.
“We’re very close to getting this worked out,” said Sen. David Hoyle, a Dallas Democrat, after he emerged from a meeting with House negotiators at 6 p.m. Wednesday.
Rep. Paul Luebke, a Durham Democrat and the lead tax negotiator for the House, agreed.
“The amount of revenue raised is critical,” Luebke said.
A tax deal would remove one of the last major obstacles keeping the General Assembly from sending what’s likely to be an $18.9 billion budget to Gov. Bev Perdue.
Virtually anyone who relies on government funding has been unable to properly plan for the year ahead with lawmakers deadlocked.
School districts and the counties that fund them had to put budgets in place by July 1, despite not knowing how many teaching positions the state may cut or what other changes will look like. Many public health and social service programs have been left in limbo with no clear direction on how much their funding will be cut.
Democrats control both the House and Senate, as well as the governor’s office. They say the state is facing a more than $4 billion budget shortfall and that they need at least $990 million in new or increased taxes to help bridge that gap.
Republicans dispute those numbers and argue that the state could live without a tax increase by cutting waste and properly accounting for federal stimulus dollars.
“It all goes back to what we’ve been talking about all along, which is a question of priorities,” said Sen. Phil Berger, an Eden Republican who represents parts of Guilford County.
But Republicans are not involved in the budget negotiations. That leaves Democrats to find agreement among their 68 members in the House, where it takes 61 votes to pass a bill, and among their 30 members in the Senate, where at least 25 votes are needed along with the lieutenant governor’s tie-breaking vote.
Reaching a deal that doesn’t alienate more than a few members has been difficult and accounts for the budget negotiations dragging on well past the July 1 deadline.
Until this weekend, the Senate had insisted on a plan that would have largely rewritten the state’s tax code by applying sales and income taxes to more items and services but lowering the rates.
That idea will now be assigned to a study committee, and Sen. Clark Jenkins, a Tarboro Democrat, said he hoped that it would be acted on during a special legislative session next year or during the annual “short” session that starts in May.
Hoyle, Luebke and other negotiators said that there are still details to be worked out and a chance that either the House or Senate caucus could balk at the agreement today.
“There are members in the House caucus that are having a problem with even a small increase in the cigarette tax,” Luebke said.
In broad strokes, the agreement reached by negotiators Tuesday evening would:
* Levy a 2 percent surcharge on all individuals and businesses that pay income tax. A person who would normally pay $1,000 in taxes would pay $1,020 over the next two years. That surcharge would expire after two years.
* Raise sales taxes at least three-quarters of a penny to 7.5 percent throughout most of the state.
* Possibly increase the sales tax on electricity and the surcharge on natural gas. If House members reject that change, the general sales tax would likely rise a full penny, negotiators say.
* Raise roughly $100 million in “sin” taxes. Cigarette taxes could rise as much as 15 to 50 cents per pack. The excise taxes on beer, wine and liquor would rise, but those amounts are not yet nailed down.
* Apply state sales taxes to “click through” transactions. These are essentially taxes on online retailers such as Amazon.com that have as yet not been required to collect sales taxes on purchases made in North Carolina.
Aside from the click-through tax, there are no new taxes under discussion.
Still, some rank-and-file members are skeptical.
Rep. Nelson Cole, a Reidsville Democrat, said he had trouble with the tobacco taxes. Cole’s district covers a Commonwealth Brands tobacco manufacturing plant and is only a few miles from Greensboro-based Lorillard.
“I don’t think it’s a smart thing to do, but I’m one out of 120,” he said.
Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com
Accompanying Photos
Photo Caption: North Carolina legislative building in Raleigh.
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