$1 Billion Tax Hike Will Deepen North Carolina Recession

Budget Will Actually Increase Spending by Half a Billion Dollars

Raleigh, NC – The FY 2009-10 North Carolina $20.86¹ billion state budget plan (SB 202) soon to be voted on by the House and Senate will cost thousands of North Carolina jobs and disproportionately hurt the state’s working poor.

“Don’t be fooled by the talk of a $19 billion spending plan. Many of the alleged state budget ‘cuts’ will actually be covered using federal stimulus and grant money,” said Civitas Institute Budget & Tax Policy Analyst Brian Balfour. “To accurately reflect the amount appropriated to state programs this year, one must factor in the federal dollars as well. As such, the proposed budget will spend $20.86 billion – an amount half a billion greater than actual expenditures in the recently completed fiscal year,” added Balfour.

Tax Increase to Slow Economy, Harm the Poor
The agreed-upon tax package raises the tax burden on struggling North Carolinians by nearly six percent above the currently existing tax structure. The change amounts to a severe cost-of-living increase on citizens at a time of historically high unemployment and bleak prospects for economic growth. “How do state legislators expect North Carolina families already struggling to pay their bills to come up with another six percent to give to the State?” asked Balfour.

Moreover, the massive tax increase will contract North Carolina’s economy, prolonging the recession and killing jobs. “As jobs are lost and opportunity dries up, those on the margins of employment will be hardest hit. There’s no question the General Assembly’s proposed budget will disproportionately hurt North Carolina’s poorest citizens,” added Balfour.

Spending Up Year-Over-Year, Long-Term Spending Growth the Real Problem
North Carolina lawmakers need to be honest about the root of state government’s budget problems: dramatic, long-term uncontrolled spending growth.

• The proposed FY 2009-10 budget would appropriate $20.86 billion (including  $1.85 billion federal money to replace state spending “cuts”) – up nearly half a billion from an estimated $20.3 billion actual expenditures for FY 2008-09². The plan, in fact, would spend more than the FY 2007-08 budget.
• Even amid the recession, a budget for FY 2009-10 of $20.86 billion would mark a continued, rapid escalation of state spending:
• Spending would be up 31 percent in five years, and 47 percent in 10 years
• Digging yet another budget hole requires a long-term trend of out-of-control government growth.

Even after adjusting for inflation, per person spending in the FY2009-10 budget would be³:

• Up 13% over 15 years
• Up 26% over 20 years
• Up 83% over 30 years

Rather than seize on a golden opportunity to implement meaningful spending reform, state lawmakers have instead chosen to impose one of the highest tax increases in state history on an already struggling North Carolina economy.

Concludes Balfour, “It makes little sense to punish hard-working North Carolinians with a billion-dollar tax hike because politicians in Raleigh can’t control their appetite for spending other people’s money.”