RALEIGH – Yesterday, as the North Carolina House debated a proposed $1 billion tax increase, supporters repeatedly argued that hiking income, sales, and business taxes was the only way to avoid calamity.

Every part of this statement is incorrect.

First, hiking income, sales, and business taxes by more than $800 million in FY 2009-10 and about $1 billion in FY 2010-11 is not an alternative to calamity. It will guarantee a calamity, by socking North Carolina households and businesses in the midst of a recession and making North Carolina an even-less-attractive place to work, shop, invest, and create jobs.

The largest fiscal impact would be increases in general and targeted sales taxes, about $473 million next year and $585 million in FY 2010-11. Higher taxes on multi-state businesses and LLCs would supposedly bring in $86 million next year, $198 million in FY 2010-11. The rest of the tax hike, $257 million next year and $183 million in FY 2010-11, would come from raising income taxes.

All would be harmful, the income-tax hikes particularly so. If the legislature adopts the House proposal to create a new 8.25 percent income tax rate on individuals making between $120,000 and $300,000 a year and an 8.5 percent rate on individuals making more than $300,000, North Carolina would join only a handful of states – California, Hawaii, Iowa, Maine, New Jersey, Oregon, Rhode Island, Vermont, and the District of Columbia – with similarly high income taxes.

The vast majority of individuals in these income brackets aren’t trust-fund heirs or Bernie Madoff-style crooks. They are highly skilled and productive professionals, such as doctors, lawyers, and engineers, who have heavily invested time and money in their educations. They are CEOs, owners, and investors in the thousands of existing businesses, large and small, that employ most North Carolina workers. They are entrepreneurs and innovators who take great risks to start new businesses – paying the price when they fail, as most do, and reaping the rewards when they succeed.

North Carolinians of all incomes gain when such individuals choose to live, work, and create jobs in our state. North Carolinians lose when such individuals go elsewhere. Imposing one of the highest income-tax rates in the United States will lead some of them to do just that.

And, seriously, if state lawmakers truly believe that California, Oregon, New England, and D.C. are good role models for North Carolina public policy, I don’t think any amount of empirical data and reasonable argumentation will sway them. They are fantasists, not realists.

Second, enacting a $1 billion tax increase will not allow the General Assembly to avoid budget cuts. The vast majority of the budget savings the House has been contemplating are going to occur anyway. Even as the tax hikes weaken North Carolina’s already shaky economy, positions will still disappear at the state’s schools, colleges, and universities. Medicaid expenses will still be trimmed. Small prisons will still close.

Furthermore, most of these budget savings are reasonable, not calamitous. They reflect a necessary adjustment of state spending to available revenue. Indeed, much of that adjustment has already occurred. It isn’t a new budget cut. You have to compare the House’s proposed 2009-10 budget, $19.3 billion (consisting of state dollars plus federal bailout funds), with actual spending in the current 2008-09 fiscal year, $20.3 billion, rather than to the inflated continuation budget of $22 billion.

I’m not denying that under the House budget, state spending next year would be $2.7 billion below the now-fictional continuation budget. I’m pointing out that most of that overall spending reduction, $1.7 billion, has already happened. The adjustment has been painful, but hardly calamitous.

Finally, raising taxes was never the only alternative to implementing the most-objectionable cuts of the original House budget. A better alternative would have been to fashion a serious no-new-taxes budget, a plan truly designed to fund the highest priorities of North Carolina government with available revenues. The House plan was really a scheme to scare moderate lawmakers and the general public into accepting higher taxes.

Even as House appropriators crafted a list of budget cuts that we fiscal conservatives at the John Locke Foundation would never have contemplated – such as cutting mental health services by $80 million and robbing local school districts of $90 million in building and transportation funds – they chose not to adopt commonsense budget savings that we have long advocated, such as 1) using $85 million in university overhead receipts to pay for, well, actual overhead expenses at UNC and 2) reclaiming the scheduled $140 million transfer of tobacco settlement money to off-budget accounts such as the Golden LEAF Foundation.

JLF fiscal analyst Joe Coletti has just updated his budget analysis based on the new availability figures and House budget details. He calls his plan the “Can-Do Budget” – that is, a plan that really does balance the state budget without a tax increase. We’ll be publishing it shortly.

It can be done. It should be done. The alternative, a job-destroying tax increase, is truly worse.

Hood is president of the John Locke Foundation