Senate leaders work to rally support for budget

Almost a month into the new fiscal year, Senate leaders acknowledge time is not on their side.

Posted 8:58 p.m. Jul 28, 2009 — Updated 10:45 p.m. Jul 28, 2009

RALEIGH, N.C. — The last time North Carolina overhauled the state's tax policy was during the Great Depression. Now eight decades later Senate Democrats believe it’s time to modernize it for the 21st century.

“The true legislator is the man who has the courage to do something when it is necessary to do something new,” said Dan Clodfelter, D-Mecklenburg, one of the architects of the overhaul plan.

The plan under consideration would broaden the tax base – lowering sales and income tax rates, but adding taxed to services like car repairs, lawn maintenance, manicures and appliance installation.

A bipartisan coalition of business and former government leaders have pushed the idea for years as a way to tap into a tax base that has shifted from manufacturing to services.

Lawmakers thought they were close to a budget deal last week after House and Senate Democrats agreed to a tax plan that would raise $982 million in extra revenue.

The plan called for a temporary one percent increase in the state sales tax rate, raising the cigarette tax by 10 cents a pack, a 5-cent tax increase on a six-pack of beer and higher taxes on wine and liquor based on their alcohol content. It also included 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.

The deal collapsed Thursday after Gov. Bev Perdue objected to a provision that would add a surcharge for individuals and businesses that still owed state income tax at the end of the year.

A week later, the Senate is holding meetings and rallying support.

“I think I’ve seen our tax calculators show if you go broad enough that the sales tax rate can go down to 4 percent or 3 percent,” said former Charlotte Mayor Richard Vinroot.

Working out the details could take weeks, if not longer.

The state has been operating under a continuing resolution since the start of the fiscal year on July 1. The current stopgap measure, which expires on July 31, allows the governor and state agencies to spend no more than 84 percent of what was approved in last year's budget.

House Majority Leader Hugh Holliman, D-Davidson, said he is hopeful a short-term deal can still be worked out.

“We made some adjustments on the surtax to eliminate lower-income people,” Holliman said. “We’ve also looked at ways we might lower the sales tax a little bit.”

People earning less than $70,000 a year would be considered lower-income.

Almost a month into the new fiscal year, Senate leaders acknowledge time is not on their side.

“We would look at some of the other taxes temporarily and hopefully replace those taxes with the plan in short session,” said Sen. David Hoyle, D-Gaston, one of the tax negotiators.

Senate Republican Leader Phil Berger, R-Rockingham, was supportive of the concept of the proposal, which the Democrats had previously introduced, but critical of the timing.

“To try to resurrect something they scuttled a month or so ago is just the wrong thing to do. It is just an indication of a level of desperation, an indication of a failure of the Democrats who control both houses of the general assembly.”

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