A crumbling tax deal.

By: - July 6, 2005 8:14 am

State lawmakers were still shaking off the dust after the holiday weekend, but there were ominous rumblings behind the scenes that last week’s tax deal between the House and Senate might be unraveling.  Legislative leaders agreed last Thursday to extend the 2001 sales tax increase as part of the continuing resolution to keep state government operating for another three weeks while negotiations on a final budget continued.

Senate leaders are adamant that the 2001 income tax increase on the wealthy should expire. A group of progressive House Democrats that includes the Legislative Black Caucus refused to support ending the income tax hike unless the regressive sales tax was also reduced.  Last Thursday morning, it seemed that the two sides had reached a deal. The problem is that both sides have much different impressions of what the deal actually was.  

Senate leaders told reporters that the House had agreed to an end to the income tax hike on the wealthy in exchange for an assurance that the poor and middle class would also receive a tax cut, most likely a one-tenth of one percent reduction in the state sales tax.

Several House leaders do not believe anything is settled about the income tax rate on the wealthy and that the continuing resolution merely gave the two sides more time to resolve their dispute. Leaders of he Legislative Black Caucus believe the agreement includes not only the small reduction in the sales tax this year, but also a four tenths of a percent reduction in the 2006-2007 year, taking the sales tax back to 6.5 percent.  

All of this may seem like legislative maneuvering that is more about politics and Raleigh insider power games than policy, but much more is at stake. Senate leaders want to cut taxes on the richest people in the state and judging by the Senate budget, they are perfectly happy making the most vulnerable people in the state pay for the tax cut.

The House wants to cut taxes too, but for everybody, not just for people who earn $813,000 a year. The House made more cuts to education to pay for its tax reductions.  

There is a third way of course, an easy way to settle the tax dispute. Forget about tax reductions until legislative leaders can make sure that the budget makes vital investments in services that improve lives and create jobs, investments in affordable housing, Medicaid services for the aged, blind and disabled, help for some of the 25,000 kids on the waiting list for a day care subsidy.

Tax cuts ought to be fair, but the goal of this legislative session should not be to cut taxes. Lawmakers should instead address the state’s most pressing problems. Let’s have a deal between the House and Senate on that first.

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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