Local News

Momentum Grows for Sales Tax

Posted July 9, 2001 7:52 a.m. EDT

— Budget writers will be back at work Monday, trying to figure out solutions for the state's financial crisis.

Over the weekend Governor Mike Easley said North Carolina's bank accounts are empty and a tax increase may be needed to raise as much as $800 million.

Three main reasons for the the budget crisis:

  1. There's been a huge drain on state reserves due to hurricane recovery expenses, court ordered reimbursements to taxpayers and higher-than-expected Medicaid costs.
  2. About $1.8 billion in tax cuts during the 1990's chopped state revenues.
  3. The nationwide economic slowdown has hit North Carolina faster and harder than almost any other state. Unemployment hit 5.2 percent in May, resulting in dramatically lowered tax collections.

Easley says a tax increase will be necessary even if a lottery is approved.

Some Republicans oppose raising any taxes. Liberal Democrats say a sales tax increase would affect the poor disproportionately.

But with news from Governor Easley that the state needs an additional $700 million to $800 million this year to restock its empty bank accounts, some middle of the road legislators may reconsider their stances.

State Representative Leo Daughtry, a Johnston County Republican, says more of his party colleagues are becoming sympathetic to a local increase. They don't see a tax charged by the counties as a tax increase.

The taxes could allow the state to keep millions of dollars that it normally turns over to local governments. Local governments could use the sales tax revenue to offset the loss.