RALEIGH – The House version of the 2007-09 North Carolina state budget is out, and fiscal conservatives are understandably heaping scorn on the legislative leaders’ assertion that the “temporary” sales and income taxes enacted in 2001, in response to a fiscal “emergency,” must again be re-imposed – despite the discovery of hundreds of millions of additional, unforeseen revenue growth.

I certainly agree. The John Locke Foundation’s alternative budget for 2007-09 proposes the immediate elimination of those temporary taxes, as we have proposed since, well, the taxes could conceivably have been called “temporary.”

But let me call attention to another annoying and costly bit of tax-policy detritus from state government’s recent fiscal storms. Starting in 2001, Gov. Mike Easley and the legislature enacted several changes in state tax law that, they argued, “reformed” the treatment of telecommunications services to eliminate inequities and bring the taxes in line with those imposed on other retail goods. These changes yielded, by my count, at least $150 million a year in higher taxes on phone, cable, and satellite service. Unlike the aforementioned half-cent increases in sales and income taxes, these taxes were never even promised to be “temporary.” They are permanent increases in the cost of living for most North Carolina households.

Proponents of these money grabs tried to justify them on tax-policy grounds, but the arguments didn’t wash. For example, if one telecom service cost artificially more than a competitor due to inequities in the tax code, one need not have solved that problem by hiking taxes on the competitor. The state could have reduced the higher tax rate, or at least equalizing the two on a revenue-neutral basis. Make no mistake: the motivation behind these telecom tax increases was to finance government growth, not to serve the interests of consumers or firms.

Partly as a result of these actions, North Carolina communities impose a relatively high tax burden on communications services, according to a new study by economists at the Heartland Institute in Chicago and Suffolk University’s Beacon Hill Institute in Boston. Examining a variety of taxes and fees imposed on cable, wireline, wireless, and Internet services, the authors found that of the 59 cities studied, Charlotte had the 13th-highest tax burden. Raleigh ranked 17th.

Consider these comparisons. Charlotte households who purchase these telecom services pay about $130 more a year than Boston households do just because of taxes. Similarly, Raleigh households pay $135 more a year than do households in Las Vegas.

The cost estimates are actually conservative in that they exclude some forced exactions, particularly on telephone and cable companies, and do not include fees that might reasonably be construed to offset the cost of using the public right-of-way to deliver services. Basically, most cities in the U.S. – with North Carolina’s among the worst offenders – treat telecom taxes as a convenient way to chisel revenue out of consumers in a way that won’t rile them to much, by burying the monthly cost in the fine print of phone and cable bills. North Carolina’s effective tax rates on telecom services are often twice or more the general sales-tax rate. Indeed, the effective tax rate on cable TV in Charlotte and Raleigh was 21 percent at the time of the study, basically the same as the effective tax rate on beer.

Watching all this is enough to drive one to drink.

Hood is president of the John Locke Foundation.