News: CJ Exclusives

JLF Releases Alternative Budget

Freedom Budget designed to help reverse rising tax burden trend

N.C. lawmakers could cut taxes, slice $1 billion from the governor’s budget plan, and still spend more money on top priorities, according to the John Locke Foundation’s new Freedom Budget 2007.

“North Carolina has gone from having the 33rd highest tax burden in the nation in 2001 to the 19th highest burden today,” said Freedom Budget 2007 author Joseph Coletti, JLF fiscal policy analyst. “This alternative budget plan would help the state reverse that trend.”

“Temporary” sales and income taxes adopted in 2001 would finally disappear, saving taxpayers $300 million, Coletti said. “This plan also includes a comprehensive tax reform proposal that would end more than $300 million in tax preferences and biases while providing more than $800 million in broad-based tax relief,” he said.

“The top individual and corporate tax rates would drop to 6 percent. New or reinstated tax credits would address preschool and education spending, health insurance, and long-term care insurance. A family of four earning the median income and purchasing their own health insurance could save more the $1,300 in taxes in 2008 under this budget,” Coletti said.

County governments, state government workers, and North Carolina’s mental health system would also fare better under Freedom Budget 2007 than under Gov. Mike Easley’s proposed $20.1 billion General Fund budget for 2007-2008, Coletti said.

“This budget recommends $563 million in new spending beyond the governor’s recommendations,” he said. “It doubles proposed state employee pay raises. It proposes $172 million to cover the transfer of one-third of counties’ Medicaid costs to the state. It spends $50 million more than the governor recommends to continue transforming the mental health system.”

Coletti’s budget more than offsets the proposed increases by shaving $1.57 billion from Easley’s spending plan. The Freedom Budget recommends more than 290 changes to Easley’s plan. Changes that would save taxpayers’ money include: redirecting spending on non-teaching positions in public schools to fund teacher pay raises; eliminating targeted corporate tax subsidies; reforming the Medicaid program; and converting the Smart Start program into a state income-tax relief package for preschool expenses and education.

“Rapid growth in government revenue gives politicians grand ideas about the good they can do with a few hundred thousand dollars here or a few million dollars there,” Coletti said. “Once they’re funded, these great ideas are rarely evaluated to see if they’re accomplishing their aims — or even if the aims are still appropriate.”

Freedom Budget 2007 also recommends $138 million in savings from the governor’s 2007-2008 transportation budget, Coletti said. “That includes elimination of subsidies for rail, reductions in paving of rural secondary roads, and a two-thirds reduction in contingency construction money controlled by the House speaker and the Senate president pro tem,” he said. “Ending Highway Trust Fund diversions would add to these savings to free up more money for spending on road and bridge maintenance, urban loop construction, and other road construction.”

By relying on constitutionally sound principles such as reforming entitlements, redirecting spending to higher-priority items, and reviving free enterprise, lawmakers can improve state government, Coletti said.

“The Tax Foundation tells us North Carolina’s tax burden has grown from 10.1 percent of personal income in 2001 to an expected 11 percent in 2007,” he said. “That compares to a 10.7 percent burden in South Carolina and 10.3 percent in Georgia. If our elected officials are as committed to helping the state’s economy as they say, they should consider directing spending to infrastructure needs and lowering the tax burden at the state and local levels.”