Local Politics

Dems reach tentative deal on taxes

Posted July 30, 2009 11:34 a.m. EDT
Updated July 31, 2009 3:02 p.m. EDT

— Legislative leaders crossed their fingers Thursday that a plan to raise almost $1 billion in new taxes would be satisfactory to Democratic lawmakers and Gov. Beverly Perdue.

A tax deal that the House and Senate agreed to a week ago fell apart after Perdue objected to a provision that would add an extra charge to income taxes owed at the end of the year.

The new deal includes a similar income tax increase but exempts most state residents by using a tiered structure.

Couples whose taxable income – the income after all deductions and exemptions are figured in on the annual North Carolina tax form – is less than $100,000 and individuals whose taxable income is less than $60,000 wouldn't have to pay a surcharge under the plan lawmakers proposed Thursday.

Fiscal analysts in the General Assembly said that means 87 percent of North Carolina taxpayers wouldn't be affected by the plan.

A 2 percent surcharge would be applied to the tax owed by couples whose taxable income is between $100,000 and $250,000, and those whose income is more than $250,000 would pay a 3 percent surcharge. For individuals, the 2 percent bracket would run from $60,000 to $150,000, and individuals making more than $150,000 would pay 3 percent extra on their taxes.

A couple who owe $6,000 in state income tax, for example, would pay an extra $120. For many, that would translate into smaller tax refunds next spring, although those who haven't had enough tax withheld from their paychecks this year would have to write a bigger check to the Department of Revenue next April.

"Only 13 percent will be paying any additional surcharge, and the surcharge is on the tax liability so it's not an onerous burden for anyone," said Sen. David Hoyle, D-Gaston.

Although several lawmakers declared a deal to be in place, House Majority Leader Hugh Holliman was reluctant to follow suit, saying lawmakers have seen previous arrangements collapse before.

"We want to touch all the bases, and part of that is (working with) the governor's office and, of course, our caucuses too before we say there's a deal," said Holliman, D-Davidson.

The Democratic caucuses in the House and Senate will back the tax proposal, legislative leaders said, although they haven't met formally to discuss it.

"They've more or less seen it, and they're pretty much on board," Hoyle said. "I know we've got enough votes."

Appropriations committees are expected to work through the weekend to finalize spending plans so that an overall budget can be presented to the House and Senate next week, officials said.

To keep state government running past Friday, when a stopgap spending measure expires, lawmakers passed another stopgap plan Thursday. The legislation restricts spending to 84 percent of 2008-09 levels and includes no expiration date.

Senate President Pro Tem Marc Basnight and House Speaker Joe Hackney spoke with Perdue Thursday afternoon and said she was still skeptical about the tax plan but likely would go along with it.

"There is a semi-deal of some sort that the speaker, myself and the governor have reviewed," Basnight said.

Perdue said the budget remains a work in progress but said she thinks lawmakers are heading in the right direction.

"Lawmakers know I will not sign a budget that cuts education to the bone and unfairly taxes our working families," she said. "We aren’t there yet. We still have work to do, but I’m confident we are moving in the right direction."

Perdue urged lawmakers to raise $1.5 billion in new revenue to avoid drastic cuts to public education as lawmakers try to erase a projected $4.6 billion deficit. House and Senate leaders, however, have stuck to plans that would generate $990 million in new revenue.

In addition to the income tax surcharge, the latest plan includes a one-cent increase to the sales tax rate and higher taxes on tobacco and alcohol. The state also would claim a bigger share of alcohol taxes under the plan, holding onto some money previously distributed to municipalities.

Both the sales tax increase and the income tax surcharge would expire after two years.

"We don't like taxes. No one likes taxes, but these are tough times, and we had to raise something to get us to fill the $4.5 billion gap," Hoyle said.