Perdue not happy with proposed tax plan

None of the senators like the tax increases that would add $982 million to state coffers for 2009-10, but they said they are willing to support the outline floated Tuesday by the Finance Committee.

"We all have heartburn about this, but what are our options? What are our alternatives?" said Sen. David Hoyle, D-Gaston, one of the Senate's chief budget negotiators.

It's unclear whether Gov. Beverly Perdue will approve the budget with the proposed revenue parameters. It falls short of the extra $1.6 billion in revenue she asked legislators to find to avoid deep cuts to education spending.

In a statement released Wednesday afternoon, she took lawmakers to task for their slow-moving negotiations and said they need to ensure schools, public safety and health aren't harmed by budget cuts.

"School starts back in less than a month, and principals, teachers and parents still don’t know what they can expect for their children in the classrooms. This is unacceptable," she said. "I am once again calling upon the General Assembly to do what they were sent to Raleigh for – to make tough decisions in tough times. From what I’ve seen so far, I remain very concerned about the budget’s impact on the K-12 classroom. Find a way to protect public schools and the core services of safety and public health."

Senators previously balked at the notion of sales and income tax increases, but the plan calls for a temporary 1 percent increase in the state sales tax rate and a 2 percent income tax surcharge for the next two years on people and businesses that still owe taxes at the end of the year because they have underpaid on their withholding or quarterly taxes.

Other tax increases included in the proposal include 10 cents on a pack of cigarettes, 2.8 percent on other tobacco products, 5 cents on a six-pack of beer, 4 cents on a bottle of wine and 5 percent on other alcohol.

The tax increases would take effect on Sept. 1, and senators said they want to revisit next year the idea of taxing services like car repairs and lawn maintenance in order to roll back the sales tax. If not, the extra penny on the tax rate will last at least two years.

Since the Democratic Party controls both chambers in the General Assembly, getting all members of the caucus on board with the plan essentially assures quick passage when the budget comes up for a final vote.

The state, which has been operating under a continuing resolution since the start of the fiscal year on July 1, could have a budget in place by the middle of next week. The current stopgap measure allows the governor and state agencies to spend no more than 84 percent of what was approved in last year's budget. It is set to expire at midnight on Aug. 1.

Senators said they agreed to compromise to avoid having to stretch negotiations into August and a third continuing resolution.

Charles Heatherly, who plans to buy a refrigerator in the coming weeks before any sales tax increase takes effect, said lawmakers "ran out of courage," not out of time. He said they should have been more creative in approaching the deficit and said simply raising the sales tax wouldn't be an effective solution.

"We send guys up there to do the right thing. Sometimes they do, sometimes they don't," Heatherly said. "That tax would make a difference at the end of the month, if you added it all up."