This week’s “Daily Journal” guest columnist is Donna Martinez, associate editor of Carolina Journal.
How is it that people can read the same document but come to vastly different conclusions about its message? I’ve been mulling over that question since sitting down with American Sphinx: The Character of Thomas Jefferson. Author Joseph J. Ellis reminds us the ideals enshrined in the Declaration of Independence, as well as Jefferson’s many other writings, have over the years been used to support or oppose beliefs and policies that span the political spectrum.
The same phenomenon of interpretation is at work today in North Carolina. The document in question—the House version of the state budget—isn’t composed of Jefferson’s idealistic prose or intellectual arguments. Yet the story this budget tells to those who read it—who benefits, who loses out, who carries the burden—depends on whom you ask.
Last Sunday on NBC 17’s “At Issue,” the Triangle-area public affairs program I contribute to, guest David Mills of the progressive Common Sense Foundation argued the $20.3 billion House budget is a good start but not enough to cover the needs he believes government should address. Guest Francis De Luca of Americans for Prosperity North Carolina, which supports free markets and limited government, countered that the budget is plagued by overspending, broken promises, and misplaced priorities.
My take? The continual growth of the budget has catapulted state spending into drunken sailor territory. This chart tells the tale of the decade between fiscal year (FY) 1996-97 and FY 2005-06. General Fund spending on operations was up 64 percent, well beyond the combined rate of population growth and inflation. If the new House budget is adopted as the fiscal roadmap for the next two years, it will order up another round in the spending spree—7.6 percent.
Despite the bloat, there are decisions worth applauding in the House budget. Winners include the counties, which would receive $100 million for Medicaid relief. Too bad it’s only a one-time infusion. Other smart moves include the elimination of some university system positions and, after years of being shunned as the red-headed stepchildren, salary increases for rank-and-file state employees would move closer to parity with teachers who’ve reaped the benefit of a mistaken notion they aren’t paid above the national average. They are, when salaries are rightly adjusted for experience, pension, and cost of living.
Who’s paying the freight in the House budget? One interpretation says it’s the poor, in light of the decision to—yet again—extend the “temporary” sales tax rate of 4.25 percent. This regressive tax is supposed to be offset by a new state Earned Income Tax Credit (EITC). But, as John Locke Foundation Fiscal Policy Analyst Joe Coletti points out in this report, the EITC will provide only about $17 of net savings once the additional sales tax is factored in.
I count myself among those who say the state’s job market pays the price for this budget. The extension—yet again— of the “temporary” 8 percent personal income tax rate is the culprit. Sold as a way for the so-called rich to pay penance for the supposed sin of success, the highest marginal rate applies to married couples filing jointly with $200,000 in taxable income. Singles take on the rich moniker at $120,000. What’s rarely discussed, however, is the impact of the high rates on the plans of business owners.
Most companies do not pay corporate income taxes. Instead, their owners pay personal income taxes. Since these entrepreneurs create the majority of jobs, the money they might otherwise invest in creating new jobs, adding employee benefits, upgrading equipment, or expanding services, is instead sent to the government.
Ironically, the additional tax revenue derived from these businesses will be redistributed by the state to programs that, among other things, incent companies to—you guessed it—create jobs. Thus, North Carolina’s high marginal tax rates, as well as corporate tax rates, are a concern to business owners.
It is possible to produce a state budget that’s neither padded with spending that’s outside the purview of state revenues, nor neglects our fellow citizens who can’t help themselves or who need a temporary hand to get back on track. Freedom Budget 2007, compiled by JLF’s Joe Coletti, is based on freedom, liberty, and individual responsibility. It’s an approach Mr. Jefferson would applaud.