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N.C. House Democrats take heat from both sides

House Democratic leaders took criticism from both within and outside their party Tuesday for their roughly $18 billion budget proposal for state government and a tax package that would raise revenues at the cash register, online and every April 15.

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RALEIGH, N.C. — House Democratic leaders took criticism from both within and outside their party Tuesday for their roughly $18 billion budget proposal for state government and a tax package that would raise revenues at the cash register, online and every April 15.

The chamber's two largest committees debated the two-year spending and tax plans that are seeking to close a more than $4 billion budget gap for the fiscal year starting July 1.

The additional taxes - which include higher rates on sales taxes, income taxes and alcohol - would generate more than $815 million next year.

House Democrats were still aiming to get both the budget and related tax changes approved by the end of the week.

"This is the least painful thing that we could come up with," Rep. Pryor Gibson, D-Anson, co-chairman of the House Finance Committee, said of the tax plan. "There's no pride in this document."

Under the plan, the sales tax rate most consumers pay would rise from 6.75 percent to 7 percent and be expanded to cover warranties and repairs.

Two new income tax brackets would be created for the highest wage earners. A couple making $400,000, for example, would fall into a proposed 8.25 percent tax rate and would pay an additional $1,000 in income taxes.

Alcohol would be affected, as well. The tax on beer would be increased by 1.5 cents per 12 oz. Can while a tax on wine would increase 7.5 cents per bottle. There would also be a 1.5 percent increase on liquor. Combined, it would bring an additional $39.4 million for the 2009-10 fiscal year.

Taxes on amusement parks, movies and other entertainment would generate $24.6 million for 2009-10.

Business taxes also would change, with more firms having to pay franchise taxes and corporations filing tax returns differently because the state believes they are hiding profits in out-of-state subsidiaries.

Both Republicans and some Democrats complained the taxes would discourage companies from setting up operations in North Carolina and hurt citizens who are already struggling to make it as the state's jobless rate nears 11 percent.

"We are mandating cuts in the profits of small businesses and workers across this state," said Rep. Thom Tillis, R-Mecklenburg. "You are absolutely through these tax increases going to cut out some of the very things that we need to happen to get this economy going on the right track."

House Democrats wanted the finance committee to vote on the tax package and the House Appropriations Committee on the budget later Tuesday.

The tax plan would be used to soften what lawmakers and public service advocates called some of the more onerous cuts in education, health care and courts and prison systems and probably save jobs.

Under the original $937.6 million plan – the finance committee trimmed it by more than $120 million by eliminating a proposed 25-cent-per-pack increase in the state cigarette tax -- $352 million would have gone to education in 2009-10.

For example, a provision to increase class sizes in public schools by two students next year and three the following year would exempt classes in kindergarten through third grade, saving almost 2,600 teacher positions next fall, according to legislative staff.

About $288 million would have gone for health and human services, $72.7 million for justice and public safety, $215 million in reserves and $9.7 million for other needs.

"Without the package, there can be no restoration of the cuts," said Rep. Paul Luebke, D-Durham, the chief architect of the tax plan.

The taxes, however, only would account for 20 percent of the current spending reductions - angering some Democrats who want more taxes to reverse more cuts. The $17.8 billion budget plan could still eliminate thousands of vacant and filled state positions.

"This plan is weak and it is not bold and not aggressive enough," said Rep. Earl Jones, D-Guilford, who said he would vote against it. "It does not provide a real recovery."

The finance committee agreed to cut out the increase in the state cigarette tax, which means the tax would remain at the current 35 cents.

Rep. Van Braxton, D-Lenoir, the amendment sponsor, said the tobacco industry already has been hit enough this year by a federal cigarette tax increase and a ban on smoking in restaurants and bars.

Still, Braxton said he and other conservative Democrats are having a hard time deciding whether they can live with higher taxes, deeper spending cuts, or a little of both. He said he might not be willing to vote for the budget, which is scheduled to come to the floor next week.

"Right now, there's not enough consensus," Braxton said.

The uncertainty doesn't bode well for House Democrats, who need 61 of their 68 members to vote for the budget and taxes to get a majority, since no Republicans are likely to vote for new taxes. Eliminating the cigarette tax increase may persuade more Democrats from tobacco-growing areas to accept the deal.

In addition to the taxes and other fees, the House closes a budget gap with $2.2 billion in cuts as well as $1.3 billion in federal stimulus money, said House Majority Leader Hugh Holliman, D-Davidson.

The Senate already approved a budget plan in April that called for raising $500 million more taxes. But that was before lawmakers found out that tax collection fell dramatically this spring, requiring the House to seek additional reductions and taxes.

Democrats in both chambers, along with input from Gov. Beverly Perdue's office, will negotiate a final budget bill this summer for Perdue to sign into law.

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