RALEIGH — Layoff notices are going out Tuesday to 278 state employees while Governor Easley is meeting with state financial officers to protect North Carolina's top credit rating.

Easley says the layoffs are necessary because of the budget crisis. He is also cutting 600 vacant positions, mostly from the Health and Human Services departments and the state university system.

Easley also says that he has to revise his budget projections. He says the budget deficit for the 2001-02 year will be $350 million. He also says that the following year, the budget deficit will reach $924 million.

Retired State Treasurer Harlan Boyles says he believes the state will have to raise taxes in order to balance the budget.

Tax revenue has slowed, while some unavoidable costs like Medicaid bills and health premiums for state employees have risen.

House members are considering a package that would raise income taxes on couples earning more than $200,000 a year and singles earning over $120,000. The plan also includes new taxes on HMOs and liquor and eliminating a limit on sales tax for luxury cars.

The package includes two tax cuts. Married couples would enjoy a higher standard deduction on their income taxes and parents would see higher tax credits for each child.

Hundreds of voters converged on the legislative building Tuesday afternoon to send a clear message to lawmakers as state House leaders consider a $440 million tax increase.

Various conservative groups from the republican party to radio talk show hosts organized the Tar Heel Tea Party on Halifax Mall. Anti-tax forces came from all over the state to join in the rally.