The budget and tax debate is slowly beginning in the General Assembly, with lawmakers this week hearing presentations about the revenue outlook and the forecast for Medicaid trends.  

Governor Mike Easley is expected to present his budget to lawmakers in the next few weeks, prompting more focused discussion on state spending priorities and tax policy, and whether or not to allow to temporary tax increases to expire in the next fiscal year as scheduled.

Lawmakers are now being bombarded by all sorts of numbers, budget projections, tax rates and rankings, and revenue forecasts. Here are two of the most important statistics for legislators to remember, courtesy of the North Carolina Budget and Tax Center.

Despite claims to the contrary, North Carolina’s state budget is not growing out of control. In fact, the state is spending less per capita in the current fiscal year than it spent in 2000-’01.  North Carolina hardly has a spending problem.

It is the tax system that’s the problem. It was designed 75 years ago and needs a complete overhaul to make sure that revenue grows with the state’s economy and provides the resources to meet the state’s needs. 

A high-powered commission is now studying “fiscal modernization,” but is not likely to have any significant recommendations to restructure the tax code until the 2008 legislative session. But there is something that lawmakers can do this session, which brings up important statistic number two.

The poorest 20 percent of North Carolina taxpayers paid 10.9 percent of their income in state and local taxes. The top one percent of taxpayers paid 6.3 percent of their income in taxes. That discrepancy is the basis for a proposal by Rep. Jennifer Weiss, Rep. Verla Insko, and Rep. Ray Rapp to create a state Earned Income Tax Credit to help struggling families in the state.

The plan, unveiled at a news conference Wednesday, is modeled on the Federal Earned Income Tax Credit that is received by families of 20 percent of tax filers in North Carolina. A state credit set at 10 percent of the federal EITC would provide an average of $163 to working poor families who qualify.

Not everyone thinks the EITC is the answer. Senator Eddie Goodall handed out a press release Wednesday criticizing the plan because it provides a refundable credit, meaning qualified taxpayers will receive it even if they pay no net income tax.

Goodall calls the plan a “welfare transfer,” forgetting that the income tax is only one part of a families’ tax responsibility and ignoring the fact that poor families currently pay a much higher percentage of income in state and local taxes than the wealthy. The state EITC is simply a move toward tax fairness.

The free market fundamentalists think tankers are beside themselves too, against the whole EITC concept in general, even though the federal version was supported by the leaders on the left and the right, including Former President Ronald Reagan.

They also use misleading IRS data to predict massive fraud with the tax credit, ignoring a series of reforms enacted by the IRS to reduce problems in the federal EITC, which directly reduces the potential problems in North Carolina.

The state EITC seems the least the General Assembly can do while it works on overhauling the state tax code. Thousands of families need help now.