Setting the Record Straight

Right vs. far right

Competing budget proposals don’t offer much of a choice

As most people are well-aware, Governor Beverly Perdue released her proposed state budget this week. Responses from the state policy world have been mixed. Democrats were, not surprisingly, broadly supportive. The progressive advocacy coalition Together NC also praised some parts of the proposal.

Meanwhile Republican leaders at the General Assembly attempted to get themselves worked up into a lather by claiming that it was some kind of leftist, “tax and spend” manifesto. Senate President Pro Tem Phil Berger alleged that Perdue’s proposal showed that she wanted to balance the budget “on the backs of North Carolina taxpayers and local governments.”

Ultimately though, neither Berger nor his partner, House Speaker Thom Tillis, really seemed as if their hearts were fully in the attack. There is good reason for this. As Chris Fitzsimon noted yesterday in his analysis, the proposal contain plenty of the kind of pain for which Republicans always clamor:

“There is plenty of pain in Perdue’s plan too. Ten thousand positions in state government will be eliminated and as many as 3,000 of them are currently filled. Imagine the headlines if a factory that employed 3,000 people was closing.

The revenue package makes the state’s regressive, antiquated revenue system more regressive and more antiquated by giving corporations a tax cut, while allowing the 2009 temporary income tax surcharge on the wealthy to expire while keeping ¾ of the temporary sales tax increase in place that’s falls disproportionately on the poor.”

The Together NC coalition put it this way:

“However, it’s important to acknowledge that the cuts proposed in the Governor’s budget will still be extremely painful. Thousands of people will lose their jobs, including those who support our K-12 classrooms. Our world-class university system will take a heavy blow.

For these reasons, we must note that Gov. Perdue’s budget missed an opportunity to fundamentally address our antiquated revenue system and update it for the future. Her decision to cut the corporate income tax rate, which will cost the state over $400 million per year when fully implemented, was an illusory quick fix that will do little to boost the economy or create jobs.”

Placing the proposal in context

At the heart of the budget and the debate surrounding it is the matter of revenue. Interested groups and individuals can debate specific spending priorities all they want, but ultimately, the debate comes down to a fight over tax policy.

When there isn’t enough money to fund essential public structures and services, spending debates are somewhat akin to arguing about where to place the deck chairs on the Titanic. And right now, when it comes to revenue, it’s clear that the state has rammed a fiscal iceberg.

The hard truth is this: despite a modest but real economic recovery, North Carolina tax revenues are in the tank. While total personal income in the state has fallen only slightly in the past year, revenues have fallen through the floor. That’s why we have a huge budget shortfall; our tax system is inadequate and obsolete. The tax system relies much too much on middle and lower income taxpayers (the people suffering the most) and, in effect, fails to go “where the money is.”

Seen in this light, the two main choices provided by Governor Perdue and the Legislative Republicans are remarkably similar and disheartening.

Faced with a large budget shortfall caused by an inadequate and obsolete tax system, Republicans demand and promise a budget that would make things worse by cutting income taxes on the wealthy and corporations and reducing the general state sales tax.

Meanwhile, in response, Governor Perdue has proposed a budget that makes things worse (albeit somewhat less worse) by cutting income taxes on the wealthy and corporations and reducing the general state sales tax.

The only difference is that Republicans would cut the sales tax by a full penny immediately, while Perdue would only cut it by a quarter-cent for two years and then a full cent at the end of the two-year budget. That’s pretty much it. Both sides may couch some of these cuts as “allowing temporary taxes to expire,” but this is mostly semantics. The practical result is that both are advocating cutting taxes in an extremely regressive way at the precise moment the state can least afford it.

Setting the record straight

As noted by Chris Fitzsimon and Together NC, it is to the Governor’s credit that she’s doesn’t go as far the Republicans. Her proposal to delay some of the sales tax cut would keep $750 million or so in absolutely essential funding flowing to the state and thereby prevent a great deal of unnecessary pain. A corner of a loaf is better than no bread at all.

Moreover, given the current political realities in North Carolina posed by an arch-conservative legislature, it is difficult to imagine anything much better actually becoming law in 2011. And realism has its place.

On the other hand, Governor Perdue is and ought to be an equal partner in the budget-making process. What’s more, unlike the legislative leaders, she has a genuine bully pulpit at her disposal. Were she interested in doing so, it’s clear that the Governor could put up a heck of a lot more spirited fight than she appears willing to engage in.

After all, no matter how much she parrots the conservative line on tax cuts when it comes to corporations and the rich, there is no way to placate the hard right. Witness the comments of the Berger-Tillis tag team. One rookie state senator, Thom Goolsby of Wilmington, is already attacking Perdue for not doing away with the corporate income tax in its entirety.

Seen in this light, Perdue’s proposal must be viewed as a weak opening volley in this year’s budget negotiations. At a moment in which whatever she proposed would immediately become the most progressive politically viable solution imaginable – the far “left” proposal in the debate if you will – the Governor has opted for an ideologically conservative budget that’s mostly about just hanging on and getting by rather than a spirited effort to confront the far right and renew our state.

In the days ahead, progressives will no doubt speak out in favor of the Perdue budget over the Republican alternative and they should. But it’s hard to imagine that it will be full-throated support – the kind of people power one sees boiling up in Wisconsin and other states, for instance. At this point, North Carolina’s budget choice appears to be between conservative and ultra-conservative. We could do better.