RALEIGH – Hope you’re in a giving mood.
With just a couple of months before the start of the 2005 legislative session, the state budget remains in lousy shape. I’m told that current expenses, Medicaid growth, and routine expansion items such as enrollment increases and a small (2 percent) average pay raise for state employees will require about $1.2 billion more in revenue than currently projected. Perhaps an economic growth spurt will reduce the gap a bit. Perhaps not. Either way, newly reelected Gov. Mike Easley and a new General Assembly will have to grapple with a fifth-straight year of budget deficits.
Didn’t hear much about that during the campaign? Feel betrayed by your irresponsible, mumble-mouthed politicians? Well, no point crying now. That milk has been spilled so long it’s starting to smell putrid. The political establishment in Raleigh has a firmer grasp on power now than it did before Election Day – and plans to use it to raise your taxes, as was predicted back in the summer when lawmakers enacted an unbalanced, dishonest budget bill.
The only question now is from what direction the hike will come. Some will argue that the path of least resistance will be to “extend” the temporary taxes enacted in 2001: a half-penny of the state sales tax and a new 8.25 percent top tax rate on personal income. This would bring in about half a billion dollars and solidify North Carolina’s dubious distinction of levying the highest income tax in the region and one of the highest combined sales taxes.
Another option, drawing support from Senate leader Marc Basnight and a variety of other factions, would be to raise excise taxes on tobacco products and alcoholic beverages. Depending on how aggressive the hike is, it could bring in several hundred million dollars. Of course, many advocates of such sin taxes don’t stress the tax part as much as the sin part. When not being explicitly paternalistic (interesting how many of these busybodies think it’s wrong to keep people from playing a state-run lottery, isn’t it?) they argue that a personal choice to smoke or drink is really a societal choice to incur health care and other costs, so it’s appropriate for government to urge citizens to choose differently. This logic leads inexorably to tyranny, as socializing health costs and other risks legitimizes the public regulation of personal lifestyles. It also suffers from superficial thinking about the real costs and benefits (a new study from some Duke University researchers shows, for example, that the general social costs of smoking are relatively small and likely covered by existing excises).
Still another tax-hike option, this one favored by many editorialists and anti-capitalism cranks, is to “reform the tax code” to eliminate corporate loopholes and expand the scope of the sales tax. Much of the agenda here is fundamentally wrongheaded, informed not by serious tax-policy analysis but by misunderstanding and demagoguery, but depending on how the “reform” is designed it could run well above the half-billion-dollar mark.
Right now, as the rest of North Carolina happily prepares for a joyous holiday season and tries wistfully to forget politics and government for a while, the political class is studying, scheming, and strategizing. They just know that state government isn’t too big, that it in fact needs to spend much more of your money on public schools, universities, special-interest giveaways, choo-choo trains, park land, juvenile-justice facilities, new voting machines, and who knows what else. They’ve just got to figure out the most expedient way to lift your wallet.
Merry Christmas.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.