Let’s hope part of history repeats itself

By: - December 16, 2004 3:08 pm

The state faces a big budget shortfall and the General Assembly is bitterly divided. The schools desperately need more money, human services programs are struggling and lawmakers are being bombarded with absurd calls for slashing services, cutting state workers benefits, and sharply reducing funding to vital institutions of the state. Some Republicans vow they will never voter for any tax increase.

If you think you have heard and read this before, you’d be right. But not just this year. That also describes the state budget situation in 1989 and 1991.

Republican Governor Jim Martin campaigned for office in 1984 promising big tax cuts for business and he delivered. The General Assembly cut hundreds of millions of dollars of taxes during Martin’s first term.

But the economy slowed down, the needs of the state grew, and folks decided that having some of the lowest paid teachers in the country just wasn’t good enough.

So a couple of months into the 1989 session, Governor Martin recommended that lawmakers raise the state sales tax a penny to prevent further cuts to state programs and to start to raise teacher pay.

That is Governor Martin, a Republican. Martin also endorsed the 5 cents increase in the state gas tax and an increase in the sales tax on cars to pay for a massive new highway construction program, the highway trust fund.

Lawmakers passed the highway taxes, raised the sales tax half a cent and raised other taxes and did increase teacher pay and prevented drastic cuts to important state programs and services.

But the economy continued to struggle. The 1991 General Assembly faced a $1.2 billion budget shortfall. Sound familiar? Lawmakers raised taxes by $600 million and cut the state budget by $600 million to balance the state’s books and protect the state’s vital institutions and the people who rely on them.

They raised the taxes over the objections of anti-government pundits and despite the shrill rhetoric of some lawmakers who promised it would lead to economic ruin.

The rest of the 1990s saw the biggest economic expansion in the state’s history, despite those tax increases, including an increase in the corporate tax. That’s the one tax that we keep being told is hurting economic development, despite no evidence of that effect.

At the end of the 1990s, the state had made major investments in teacher pay, human services, education, criminal justice and a whole host of other initiatives. You can argue the merits of some of the programs and justly criticize the choice of taxes raised; the sales tax is regressive after all.

But there are important lessons that can be learned from the budget crisis of the early 1990s. The economic gloom and doom predictions of the antigovernment folks never came true.

In fact, the reverse happened. The state’s economy grew, allowing lawmakers to increase funding for schools, environmental protection, health care for poor children and a host of other essential programs. And it was no spending spree. It was a series of wise investments.

By the way, the state corporate tax rate is was 7 percent before the tax hikes of the early 1990s. It is 6.9 percent today.

All that happened because leaders from both political parties stepped forward and refused to give in to the demagogues that were opposing any tax increase on any grounds for any reason. State leaders made plenty of mistakes back then, but they refused to cave into the absurd demands and let North Carolina go backwards.

Now we are at that crossroads again. Waiting lists for day care and home health services are long, poor schools need a massive infusion of resources, too many families can’t afford a decent place to live, kids are dropping out of school at alarming rates, and programs to help people with substance abuse problems stay out of prison are out of money.

The state is headed backwards again this year unless leaders come forward and confront the even more strident demagogues again, like the folks who made the tough decisions 15 years ago.

Let’s hope this one time that the cliché is right, that history does repeat itself.

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Chris Fitzsimon

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina. [email protected] 919-861-2066