Lower taxes on millionaires, higher taxes on thousands of working families, fewer services to help children, the mentally ill, and kids at risk of dropping out of school—that is essentially the Senate position in budget negotiations with the House at the end of the week. And the Senate believes it has a ticking clock on its side.
Joint budget subcommittees are now settling a lot of the differences between the House and Senate on individual spending items. But that doesn’t mean that House and Senate leaders are close to a final budget agreement and it now seems unlikely that the General Assembly will adopt a final budget before the fiscal year ends June 30.
They are still far apart on the biggest difference, the fate of the 2001 increases in the state sales tax and the income tax on the wealthy. The Senate refuses to consider keeping the tax hikes on the books and House leaders are still adamant that they remain to fund important investments this year and avoid creating revenue problems in the near future.
The Senate leaders’ refusal to consider keeping the tax increases is directly tied to Senate Majority Leader Tony Rand’s scheme to have the state take over the county share of Medicaid costs.
Rand’s plan, which has the support of a growing number of Senators, would have counties return the revenue from half a cent of the local sales tax to the state in exchange for counties not having to foot any of the Medicaid bill.
The counties would also get the chance to then raise the local sales tax another half a cent to raise more local revenue, an offer few counties could afford to refuse. The statewide temporary sales tax the Senate wants to end is one fourth of a penny.
Add it all up and it’s clear why the House leadership is steadfastly opposed to the plan. At the end of all the swapping and tax cutting and raising, the regressive sales tax would increase a quarter of one percent and the income tax on the state’s wealthiest taxpayers would decrease by a quarter of a percent.
And it’s likely that investments in human services would be less than the House proposed and lawmakers would face budget problems next year. It is a regressive recipe for disaster opposed not only by House leaders, but Governor Mike Easley and dozens of public interest groups across the state.
The Senate’s biggest advantage in the debate is the calendar. If nothing happens before July 1, the taxes will automatically expire. Both the House and Senate must pass continuing budget resolutions to keep state government operating beyond June 30th.
The House resolution is also likely to continue the temporary tax increases, which the Senate could reject outright, or simply delay until June 29th. Any tax bill must pass each chamber on two separate days.
Adding to the frustration of House members is the lack of attention to the fiscal irresponsibility in the Senate budget and the regressive nature of the tax changes resulting from the combination of the Senate tax proposals and Rand’s Medicaid scheme.
Also rarely mentioned are the House tax cuts, targeted at the working poor through a state Earned Income Tax Credit, and the House proposal to spend $100 million to help counties pay for Medicaid, with the bulk of the money going to poor counties where Medicaid costs are a large percentage of the county budget.
The House budget has plenty of problems of its own on the spending side, but in terms of tax fairness, budget integrity, and making the vital investments in human services, it is clearly superior to the Senate proposal.
It has been a while since the differences were so stark between the two chamber’s spending plans and the stakes were so high, not just for the immediate future, but for years to come.
The Senate may have the clock on its side, but the House has something far more important, a better plan for the state. What we need now is an honest and substantive debate about the final budget that would make that clear.