Fitzsimon File

The state budget debate now moves to a conference committee of House and Senate leaders who in ordinary years are appointed to work out the differences between the two chamber's spending plans.

This is not an ordinary year. The Senate passed its budget before the April revenue figures were final. When they came in, economists lowered their revenue projections for next year by $2 billion, turning the Senate budget into more of a list of priorities than a spending plan for the next two years.

The House budget spends $425 million less on health and human services than the Senate, $830 million less on education and $90 million less on criminal justice.

The Senate budget calls for $500 in new tax revenue but the Senate has not approved a plan to raise it. The revenue proposal released weeks ago by Senate leaders would expand the base of the sales and income taxes while lowering both rates.

The House passed a tax package Saturday morning that raised $784 million by increasing the sales tax by 1/4 of a percent, expanding the sales tax to more services, closing corporate loopholes and adding new tax brackets for people who make more than $200,000 a year.

If recent years are any indication, the conference committee phase of the budget process will be mostly conducted in private, making it difficult to know what's going on.

Here are some things we do know as the conference committee gets to work. Both House and Senate leaders have already shown they are willing to raise new revenue to preserve some programs, but the plans are significantly different.

The biggest fight is likely to come over the House proposal to raise the income tax on people making between $200,000 and $500,000 from 7.75 percent to 8.25 percent and to 8.5 percent for taxpayers who earn more than $500,000.

Those are marginal rates. Taxpayers who earn more than half a million dollars pay the higher rate only on what they earn above $500,000.  Senate Finance Chair David Hoyle doesn't want to hear it, telling a reporter that he would "never vote for that—ever, never."

Hoyle subscribes to the mistaken view that asking the wealthiest people in North Carolina to pay a little more to get the state through this economic crisis will drive rich people out of the state in droves and hurt economic development.

But the evidence shows it doesn't happen. The state gained a net of 204,000 residents and $11 billion in personal income in the five years after the 2001 General Assembly raised taxes on the wealthy. And the average income of the families that moved to North Carolina was more than $1,500 higher than the incomes of households who moved away.

Hoyle doesn't often mention that state income taxes are deductible on federal returns. Under the House plan somebody who earns a million dollars next year would pay roughly $2,400 more in taxes, or ¼ of one percent of his or her income.

There will be battles over other parts of the tax packages too and then there are the folks against raising any revenue. The group Americans for the Prosperous claims the House package is the biggest tax increase in North Carolina history, which is absurd, no matter how catchy a soundbite it makes.

The 1991 General Assembly raised taxes by $637 million to address a fiscal crisis. That was 8.3 percent of that year's $7.67 billion General Fund budget. The House tax package this year equals 4.2 percent of the spending the House approved.

The anti-taxers claim that cuts alone can balance the budget without damaging public schools or human services. One market fundamentalist think tank claims to have a plan to do that, though it eliminates funding for affordable housing, dropout prevention programs, education for children with disabilities, and cancer research.

The rightwing plan would also dramatically increase tuition at UNC campuses, effectively end Smart Start and More-at-Four by converting both programs to tax credits, end physical therapy services for seniors and children with disabilities, and slash payment to foster parents.  And that is just a partial list.

The draconian cuts would rip new holes in the safety net that is already tattered. Even with the proposed tax increases, the House budget still cuts $3 billion from education and $3.3 billion from health and human services in the next two years.

Those cuts are painful enough, in many cases too painful and unwise. The only thing worse would be to cave in to the anti-everything crowd's call for even deeper reductions that would set the state back twenty years.

The House budget is on the right track with its balance of cuts and new revenue and asking everybody to pay a little more to share in the responsibility of getting the state out of the worst economic crisis in a generation.

Let's hope lawmakers ignore the naysayers and demagogues and come up with a final budget soon that makes the House plan even better and protects the state's vital institutions and services and the people who need them.

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This entry was posted on Monday, June 15th, 2009 at 5:57 pm and is filed under Fitzsimon File. You can follow any responses to this entry through the RSS 2.0 feed.