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The crux of the debate

Posted on July 2, 2009 by Staff

By Chris Fitzsimon

It is no secret that the debate over taxes is holding up the passage of a state budget and threatens to prolong the legislative session well into July and maybe beyond.
There are really two tax debates raging in the legislative halls, or the Republicans would like there to be, as they continue to struggle to remain relevant in their absurd calls for no new taxes in the face of a budget crisis that threatens public schools and services for the most vulnerable people in the state.

A group of House Republicans appeared at a news conference Tuesday with small posters hanging from their necks, each with information about a different tax proposal that House Minority Leader Paul Stam said was part of the dirty dozen tax increases under consideration by legislative Democrats.

At another recent news conference, Stam and the House Republicans used construction paper bricks to illustrate how the budget should be put together. The weekly arts-and-crafts shows are well attended by reporters and soundbites from Stam or Senate Minority Leader Phil Berger occasionally end up in stories about the budget, but the real tax debate is between House and Senate Democrats.

And they are not fighting about whether to raise taxes. They have already wisely decided that they should raise at least $900 million to prevent some of the most draconian cuts to education and human services. The question is how they will raise it.

Both chambers’ tax plans are complicated, but the dispute appears to have boiled down to a major philosophical difference. Should lawmakers use this dire need for revenue as an opportunity to take significant steps towards the long-delayed reform of the state’s tax code? Senate leaders think so and their plan is based on broadening the base of the sales and income taxes and lowering the rates.

Or is it better to pass a more traditional tax package, built on the current revenue system, by raising the sales tax rate, increasing income taxes on the wealthy and closing some major corporate tax loopholes? That’s what House leaders want to do.

Reportedly, the two sides have almost finished working out the differences in spending, but there has been little progress on the major disagreement about taxes. House Speaker Joe Hackney is open to considering a progressive reform of the antiquated tax code, but doesn’t think this is the time to tackle it.

Senate leaders point to several tax study commissions in the last decade that have all come to the same conclusion: that reform of the state’s revenue system is overdue and that it should start by broadening the sales tax base to include services not currently taxed.

Rob Schofield’s latest Weekly Briefing at N.C. Policy Watch has the details of both proposals and some suggestions for a way lawmakers can take the best of both plans. It is sound advice, but it looks like it may be a while before both sides are willing to erase the lines they have drawn in the sand.

The problem is that schools, local governments and people who rely on state services can’t wait for long. Let’s get on with it.

Chris Fitzsimon is executive director of N.C. Policy Watch.

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