State Budget Fight Centers on Sales Tax

Raleigh, N.C. — State lawmakers squabbling over a proposed budget for the upcoming year are less concerned with dollars than cents – more precisely a quarter-cent tax.

A 0.25-cent sales tax increase was adopted several years ago to help balance a tight budget. It is set to expire on Sunday as the new fiscal year begins.

Senate leaders agreed to get rid of the sales tax, as well as a temporary income-tax increase for the top tax bracket, as part of its budget. The House version of the budget retains the taxes, however.

"If they allow those taxes to expire, I think they will be taking the side of the people and allowing the people to keep more of their money," Senate Minority Leader Phil Berger said.

The House has tentatively passed a continuing resolution that keeps the sales tax in place as part of paying for state government operations for a time after June 30. The resolution is expected to be presented to the Senate on Wednesday, but it's unclear which side will blink.

Rep. Jim Crawford, D-Granville, warned that letting the sales and income taxes fade away would leave the state vulnerable to shortfalls in the future.

"(A tax cut) looks good. It sounds good. But, down the road, folks will be starving, and won't have any health care," Crawford said. "If that sunsets, I think it will be gone, and it may be another year or two, but we'll be raising taxes again."

Gov. Mike Easley said he's frustrated by the legislative impasse. A delay in a 2007-08 budget costs schools that need to hire and make plans, he said.

"It creates a lot of stress on those waiting to see what the outcome is," Easley said.

Easley has said he agrees with House Democrats that the taxes need to remain in place to generate about $300 million a year for programs.

"If we lose our revenues, we could, for no reason at all, spin ourselves into a terrible situation," he said.

Lawmakers also have other challenges in hammering out a final budget, including how to ease the Medicaid burden on counties.