Analysis of the Tax Increases in the State Senate Budget

SB 622 2005 Appropriations Act

The Truth About Tax Increases 2005-2006

$916.9 Million

The Truth About Tax Cuts 2005-2006

$0

 Senate Budget Over $1,000,000,000 Spending Increase

2004-2005 $15.91 Billion 2005-2006 $16.95 Billion

This is a particularly dangerous time of year. The General Assembly begins its process of adjusting the Governor’s budget proposal, determining where the money is going to come from and how it will be spent for the next two years. They’ll be introducing new programs, expanding existing programs, starting programs to duplicate programs we already have and looking for a lot more money. The budget that just passed the Senate is $56 million larger than Easley’s spending recommendation and $One Billion larger than last year’s budget. Here we go on the tax and spend merry go round yet again.

Streamlined Sales Tax Change Is Tax Increase

$72.2 Million

Streamlined Sales Tax Changes is a catch phrase to raise taxes. Budget writers tell you that it’s an effort to uncomplicate the tax process so there is some consistency in how goods and services are taxed. What they do is look for current taxes that they can raise to a higher level, “streamlining” those to the higher rate. Using yet another excuse to raise taxes, under the streamlined sales tax changes, we’ll see an overall tax increase of $72 Million this year and $87 Million next year.

½ Cent Sales Tax Increase

$413.4 Million

The ½ cent sales tax will finally expire this year after several extensions. If left alone, we’ll realize a tax savings of $413 Million this year and $458 Million next year. The Senators chose to increase the ½ sales tax, this time making the increase permanent.

Reinstating the ½ cent sales tax will instead cost us $413 Million this year and $458 Million next year. Liberals are wrong when they say voting to extend a temporary tax increase is not a tax increase.

Income Tax Increase Called Tax Cut

$20 Million

Under a provision requiring a sunset of a temporary income tax increase, the income tax that those in the highest bracket pay will be 7.75%. The Senate budget, however, increases income tax top bracket to 8% in 2006 and then reduces it back to 7.75% in 2007. The limits for the higher brackets are also part of this change; For married individuals who file a joint return the highest tax bracket will be $100,000 (instead of $200,000); for heads of households the highest bracket will be $80,000 (instead of $160,000) and for unmarried individuals, the highest bracket will be $60,000 (instead of $120,000), and for married individuals who do not file a joint return the highest bracket will be $50,000 (rather than $100,000). What these changes essentially do is raise taxes on the middle income families by moving them to a higher bracket. The Senate is telling voters they are cutting the income tax, but the Senate budget lists these changes as resulting in increased revenue of over $20 Million in the first year.

Federal Law Non-compliance Results in Tax Increase

$22 Million

($8 Million reduction in income tax & $30 Million increase in estate taxes)

Tax changes are included that address North Carolina compliance with federal law. We’ll see tax cuts of $8 Million this year and $10.7 Million next year for updated compliance with the Internal Revenue Code when filing personal income taxes. However, our leadership has chosen not to comply with federal law phasing out the estate tax. This results in an additional tax of $30 Million this year and $121 Million next year that families will be paying on estates they inherit, including family farms and family small businesses. The North Carolina Death tax was repealed in 1998. By choosing not to comply with Federal law, the leadership re-imposes an estate tax in North Carolina. This means North Carolinians will be paying an additional $133,600,000 in taxes over the next two years.

Cigarette Tax Increase

$201.3 Million

Some goods and services will cost more due to increased user taxes. Cigarette smokers will pay an extra $.35 per pack, with a justification that the increase will stop kids from smoking. The budget contains a line item with revenue from this tobacco tax going up by $201.3 Million the first year, and $28.6 Million more the second year. If the tax will make cigarettes cost more and keep people, particularly young people from smoking, why is there so much more revenue expected?

Candy, Service Contracts, Warranties Tax Increase

$20 Million

The budget includes additional taxes on candy, service contracts and warranties. The NC Grape Growers Council is getting $300,000 over the next couple of years. This is in addition to a special allocation the council gets pursuant to the passage of SB164 in 1984 which diverts a portion of the state’s excise tax on wine bottled in North Carolina to the council. Over the life of the Grape Council, this annual appropriation has increased from $90,000 to $350,000. Under the proposed budget, the taxpayers will be giving them another $300,000. (The budget also includes some help for special interests – the film industry is getting an extra $4.8 Million for each of the next two years for incentives, money that should be provided under the Bill Lee Act, our runaway corporate welfare program.)

Fees Are Tax Increases

$162.7 Million

Fees are another hidden tax. Budget writers don’t call them taxes, but they are monies you have to pay to get a service from state government. Here are some of the fee increases (not taxes, mind you):

• Copies of driver license records (up 60%)
• Driver’s operator licenses (Class C – regular license) (up 31%)
• Restoration fee after license revocation (up 100%)
• Commercial operators license (up 50%)
• Truck licenses (up 26-38%)
• International Registration plan for interstate commerce trucks (up 26-38%)
• Certificate of Automobile Title (increased from $35 – 40)
• Automobile registration fees (from $10 – 15)
• Regulatory fee for Public Utilities
• Newborn Screening fee
• Annual registration fees for commercial feed, (from $3 -5)
• Inspection fee on seed
• Agronomic services like routine nematode samples ($ 3.00), waste samples ($5.00), Research soil and nematode samples ($12.00), Research plant, waste, and solution samples ($12.00) and others.
• Animal disease diagnostic tests and services
• Public weigh masters fee (from $12.00 – 19.00)
• Fees for weights that don’t meet American Society for Testing and Materials (ASTM) Standard
• Operator of a mine: $1,230 annual inspection and investigation fee
• Judicial fees totaling $142 Million this year and $148 Million next year include a $10.00 increase in court costs in criminal court, civil court and special proceedings, and estates.
• The Attorney General is setting up a Police Information Network and plans to charge state agencies a fee to use it.

Corporate Tax Reduction a Hoax

$0

The headlines indicate that the Senate passed a reduction in the corporate income tax rate from 6.9% to 6.4%. This analysis is based on tax cuts for the fiscal year 2005-2006. The corporate tax cut is not scheduled to take effect until January 1, 2007, and probably will not go into effect if there is no lottery.

In the same part of the budget addressing corporate taxes changes, all funding is eliminated to the Public School Building Capital and Technology Fund, a revenue stream established in 1987 that has consistently provided monies to local governments to build and maintain their schools. Original funding for this came from 7½ percent of the corporate income tax collected by the state. In the Senate’s budget, $70 Million of the net lottery revenue will go into the fund for only one year. All funding provisions for Public School Building Capital and Technology Fund end on January 1, 2007. Before the lottery is official, the leadership of our state has raided a fund that provides capital improvements to schools, stripped it of its funding source and then started a lottery to replace those raided funds, but only for one year. The balance of the fund is about $75 Million. It will be interesting to see how long it takes the leadership to divert those funds for another new program or slush fund.

In 1976, our entire state budget was less than $2 Billion. Government spending has increased every year but one since then, an extra $4 Billion in just the last six years. Government will cost us $16.9 Billion this year, one Billion dollars more than we spent last year. Next year it goes up over another half billion to $17.5 Billion. This budget calls for an additional tax burden of almost $1 Billion in 2005-2006 and $.7 Billion, in 2006-2007–that’s in addition to what you are already paying. A billion dollars here, a billion dollars there…soon you’re talking about real money.