RALEIGH – For whom do I root?

The North Carolina House and Senate are in the midst of negotiating a stopgap budget measure to fund state government operations past June 30, which is the end of the 2004-05 fiscal year. At this writing there’s no deal yet. At the same time, the two chambers are also working through their conference committees to begin fashioning a 2005-07 budget plan that splits the difference between the two on a number of spending-side items.

The immediate issue is the continuing resolution. On the tax side, both chambers favor reimposing a half-cent sales tax that, originally enacted as “temporary,” is supposed to disappear on Friday. Originally, the House wanted the tax, costing taxpayers nearly half-a-billion dollars annually, to stay in place for two additional years, while the Senate wanted it in place permanently. Now, it seems, the latter may give on that issue.

Another “temporary” tax, an 8.25 percent top rate on personal income, is scheduled to disappear at the end of 2005. That will leave North Carolina’s top rate at 7.75 percent, still among the highest marginal rates in the nation. The House wants the 8.25 percent rate to remain in place for the next two years. The Senate wants to impose an 8 percent rate for 2006 – that’s still a tax increase, for those of you who aren’t arithmetically challenged – and let the 7.75 percent top out the rates starting in 2007.

So my choices are: 1) the House, which wants to reimpose higher tax rates on income and consumer purchases for the next two years; and 2) the Senate, which wants to reimpose higher tax rates on income next year and on purchases for at least two years and possibly longer. Hip, hip, hoo – rrrrl.

I guess there is a third choice: hope that the two chambers can’t strike a bargain, thus letting the fiscal year end without any legislated budget plan in place. That would leave state government in the hands of Gov. Mike Easley to manage with existing resources and authority. I’d favor this option in a heartbeat if it would result in real reductions in the size and scope of state government. But it wouldn’t. In such an unlikely event, you can be sure that the governor would wring maximum concessions out of an embarrassed and defensive General Assembly, which would act quickly to rectify the situation.

In short, the taxpayers of North Carolina don’t really have anyone to root for in the Great Budget Showdown of 2005. The debate in Raleigh is about which North Carolinians will pay higher taxes, how much they will pay, and for how long. Some choices may be better than others, but none is truly attractive. The next deal, the final 2005-07 budget package to be hammered out in the coming weeks, involves only a modicum of better news in that the Senate version contains a half-point reduction in the state’s 6.9 percent tax rate on corporate income. I think that the personal-income tax is the more important issue, but still just about any broadly applied tax relief would be welcome at this point. However, I’m not betting on the provision getting into the conference report.

Your government at work, ladies and gentlemen.

Hood is president of the John Locke Foundation.