RALEIGH – The news just got a lot worse for North Carolina taxpayers.

Last year, Gov. Mike Easley and the state legislature enacted a massive tax hike projected to bring in more than $1 billion over two years. They said it was necessary due to a fiscal emergency, and that hikes in sales and income taxes would be temporary (the half-cent sales tax increase was to revert from a state to a local tax in 2003).

Now that last year’s billion-dollar budget deficit is likely to be followed by a $1.5 billion or larger deficit in FY 2002-03, lawmakers are talking about another round of “temporary” tax hikes or raids on trust funds. But according to Sunday’s News & Observer (see here) North Carolina could experience enormous budget deficits for the next five years.

“Projected shortfalls of $1 billion to $2 billion through 2006-07 are contained in a draft five-year budget model, obtained by The News & Observer, that was prepared for top House budget writers as they make decisions on next year’s budget,” then newspaper reported. “. . . The memo shows that even after the General Assembly closes the gap in the budget starting July 1, shortfalls are still coming. The shortfalls would top out at $2.1 billion in fiscal year 2004-05.”

There may be some reason to doubt the higher-bound estimates of budget deficits in the out years, with staffers assuming rates of spending growth that are not strictly mandated by law or the constitution. Still, the five-year projections – which have been required for years but are rarely reviewed and taken seriously by lawmakers – are jarring, to say the least.

The N&O story noted that one implication of the long-term deficits is that lawmakers will be sorely tempted to transform last year’s temporary tax hikes into permanent ones. I think the fix is already in on the sales tax; Gov. Easley has proposed giving localities the half-penny sales tax a year early, thus levying a 7 percent sales tax for the bulk of the 2002-03 fiscal year. The next step, I predict, will be to simply rescind the elimination of the state’s half-penny hike. In other words, rather than reverting to a 6.5 percent rate in July 2003, we’ll just keep it at 7 percent. And on the income tax side, it seems likely that the new top rate of 8.25 percent will be around for a while, despite its deleterious consequences for entrepreneurship and the state’s economy.

Of course, they don’t want to do anything about these taxes in this election year. They’ll wait until January, if they can.

I guess the message is, once again, don’t believe everything you hear. Actually, disbelieve anything you hear from Raleigh. The state’s budget debate isn’t about revenue projections, or natural disasters, or terrorist attacks, or temporary economic blips. It’s about the size of state government. Whatever the cost, not just in money but in the currency of public confidence, those who resist shrinking the government to its proper size will continue to raise taxes.

If they retain the power to do so.