Local Politics

Land Tax Option, Medicaid Relief in Budget Plan

Posted July 26, 2007

— Geting ready for a vote Friday, House and Senate budget negotiators spent Thursday hammering out the fine points of a tentative agreement on a $20 billion state budget for the next two years.

The agreement reached late Wednesday would permanently raise the state sales tax by a quarter of a penny, would shift Medicaid costs from counties to the state and would give counties the option to seek voter approval for either another 0.25 percent sales tax increase or a real estate transfer tax.

Public school teachers would receive a 5 percent raise under the budget plan, while other state employees would see their pay go up by 4 percent.

The transfer tax, which would be limited to 0.6 percent of the sale price, has been a major sticking point for lawmakers, especially Senate Democrats. Real estate groups have waged a fierce advertising and lobbying campaign to block it.

"All of our polling indicates that more than three-quarters of the North Carolina public are opposed to a land-transfer tax, and when they have a chance to vote on it, if they do, I think that those numbers will hold firm," said Tim Kent, executive vice president of the North Carolina Association of Realtors.

"The Senate budget did not increase tax rates at all, and the Senate leaders proclaimed that they would never give in to the House on that – but they did," said state Rep. Paul Stam, R-Wake.

The sales tax increase that was adopted during the 2001 budget crises was supposed to expire two years later. It was extended until this summer, however, to ease the state through an up-and-down economy. The budget agreement would make the tax permanent, setting the state sales tax rate at 6.75 percent.

An increase in the top state income tax bracket that was adopted at the same time as the "temporary" sales tax will be allowed to expire under the budget agreement. The state's highest wage-earners will once again pay a 7.75 percent tax on their income instead of 8 percent.

In addition to reducing the uppermost tax rate, the state would create its own version of the federal Earned Income Tax Credit for low-income workers

The fiscal year began July 1, and the state has been operating under a temporary budget that is set to expire Tuesday.

Gov. Mike Easley last week expressed frustration at the slow pace of the budget negotiations and ordered that the state release $114 million to North Carolina school districts to help them hire teachers and finalize plans for the new school year.

Easley said he wanted Medicaid relief rolled into the budget before he would sign it, and lawmakers complied with that demand.

Under the budget agreement, the state would take over the counties' share of Medicaid expenses, which are expected to be $520 million this year, in exchange for taking some tax revenues that local governments have kept over the years.

The Medicaid phase-out will help rural counties with a high percentage of residents participating in the government health-insurance program.

A coalition of local governments and businesses pushed the transfer tax option as a way to help urban counties that are seeing large population growth and that wouldn't benefit much from a Medicaid swap.

"The counties are in dire need for some income, particularly the faster-growing counties. The counties that are not growing have Medicaid problems and tremendous Medicaid costs," said Rep. Jim Crawford, D-Granville, one of the House budget negotiators. "What we're trying to do is give the counties an option so they can cover their costs."

The budget plan also would cap the state gasoline tax, which is among the highest in the country. It was unclear Thursday what the cap would be, however.

Also, a dedicated research fund would be created for the Lineberger Comprehensive Cancer Center at the University of North Carolina at Chapel Hill. The fund, which would start at $25 million a year and increase over three years to $50 million annually, would be financed by tobacco settlement money and a higher tax on smokeless tobacco.


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  • whatusay Jul 27, 2007

    hp277...Do you believe that if the transfer tax passes that property taxes will decrease? I don't think so.

  • hp277 Jul 27, 2007

    Local governments get their revenue primarily from 2 sources - the property tax and the local portion of the sales tax. The proposed land transfer tax will give them a third revenue option, if voters approve it in a referendum in each county that wants it.

    Local governments provide the services that affect us the most - police and fire protection, EMS, 911, emergency management, sanitation, water & sewer, street maintenance, parks & rec, etc. Maybe there's a lot of cuts in those to be made in your community...

    6 northeastern NC counties have had the transfer tax since the 80s, including some particularly poor counties. Pasquotank, Dare, Currituck, Chowan, Camden and Perquimans counties levy the tax. Guess what - they also have some of the lowest property tax rates in the state - as low as 25 cents.

    The transfer tax IS a substitute for higher property taxes. Besides, what's so bad about letting citizens vote on this in a referendum in each county?

  • Nancy Jul 26, 2007

    Harvey, we're posting under a story about NC taxes, not federal and if you want to go on a rant please make a blog about it.

  • Harvey Jul 26, 2007

    Nancy, let's try and live in the real world shall we? How is a tax CUT going to fix anything? Maybe if we stop the war and stop wasting money on defensive equipment that has zero chance of working, just let 540 sit as-is, let the schools overflow to 2 times what we have room for, and stop paying to help people who really need it, then maybe we can give you your .25% back.

    Let's try and live in the real world and not just HOPE that cutting taxes will net us more money when we can actually collect it and TRY to spend it wisely. (I guess I need a reality check too huh? :D )

  • Nancy Jul 26, 2007

    Harvey "It's going to take a tax hike to fix all the damage that the current administration has done."

    So a local tax hike will fix federal issues? Well dayum! Why didn't you just say so! {end sarcasm}

  • ladyblue Jul 26, 2007

    Joshau is dreaming again that even with the transfer land tax there won't be tax increses on property. Is he is for a shock. As long as Democrts run in office there will be taxes, taxes taxes. I'm expecting Heck we may as well start taxing babies, at least we could get some tax out of llegals.

  • The Queen Jul 26, 2007

    I say Cut Medicaid now. As a nurse in one of the poorest counties around (Richmond) all we see is young able bodied people coming in that could work on disability or having babies. Stop rewarding bad behavior. Cut out all benefits to illegals. No one who is here illegal should be entitled to anything. Bring in jobs. South Carolina seems to have no problem. Oh yea, they don't have the high tax rate. Hum? Republican governor. Only people who should benefit from the system is the elderly and the truly disabled.
    North Carolina needs a major change.
    Also the lottery-what a joke. Difficult to win here on scratch cards. Also where is all the money from it? Thought it was going to take the burden off the taxpayers regarding the schools.

  • Ripcord Jul 26, 2007

    Joshua... "gave billions in tax cuts to the wealthiest of Americans"

    According to the Nation Taxpayers Union:

    In 2002 the top 1% of wage earners paid 33.71% of all collected federal income taxes.

    In 2003 the top 1% of wage earners paid 34.27% of all collected federal income taxes.

    In 2004 the top 1% of wage earners paid 36.89% of all collected federal income taxes.

    Between 2002 and 2004 the top 1% paid 3.18% MORE in taxes, not less.

    The top 1% of wage earners are paying over 1/3 of all federal income taxes. Are they paying their fair share?

  • Ripcord Jul 26, 2007

    I find it interesting that for all the talk about raising taxes (and the usual hatred of the rich) and funding this and that program once again not a word is uttered about reducing the pork and fat of state gov't. Not one syllable about reducing the cost of government.

    We will never learn.

  • lost hope Jul 26, 2007

    It"s not about commissions. It is about another tax burden. It does not matter how much money you give a politician he will spend over and above that amount. They are still trying to figure out where to get money for lottery short falls. I have yet to buy a ticket. I saw where someone won a millon dollars. They bought the ticket with after tax money, but paid around 320,000 in taxes when they went to pick up the money.(go figure)AS for you who wants the agent to cut his fee to 5%, you list yours at 5 and others list at 6% see which houses get showed the most!