In 2009, North Carolina lawmakers eliminated their $4 billion budget gap (roughly 20% of the state’s general fund) with a mixture of spending cuts, increased federal assistance, and a two-year $1.3 billion temporary tax package. While the tax package relied primarily on a regressive 1-cent increase in the state sales tax (it also included an income tax surcharge on high-income households and corporations), the significant amount of revenue it raised helped to stave off proposed devastating cuts to education, health care, and public safety. But, the spending cuts made were still deep, and the impact has been felt by every family and community in the state.
Last week, Governor Beverly Perdue announced that she intends to put together her 2011-2013 budget without the temporary taxes and instructed agencies to craft budgets that reduce spending by up to 15%. "I believe we should try to cut to the core ... and then we'll make those decisions later," Perdue said. "At this point in time, my budget will not have that sales tax increase."
Essentially, the state is back to the same budget challenge it faced two years ago — a new $3.3 billion budget shortfall — but this time without the federal government pitching in, and, if Governor Perdue has her way, with no new revenue package.
The good news is North Carolina House and Senate Finance Committee members have been working together on a proposal for comprehensive tax reform, but no legislation has emerged from their discussions. As North Carolina grapples with the news of a potentially significant budget shortfall next year, there are plenty of good reasons for state lawmakers to renew their commitment to progressive tax reform instead of resorting to painful spending cuts.