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    House Tax Plan OK'd

    BY Mark Johnson
    08/31/2001
    by Mark Johnson on 8/31/01.

    Lawmakers in the N.C. House resolved weeks of financial wrangling Thursday and gave final approval to raising taxes by $700 million, only to find themselves confronting the same dispute they just settled.

    The House passed the tax package by a 62-56 vote, approving a 1/2-cent sales tax increase and a 1/2-percentage point increase in income tax on wealthier taxpayers. Before the vote was even cast, however, Rep. Mickey Michaux, D-Durham, reminded his colleagues that Senate leaders have already declared they will reject the tax plan.

    "Let's pass this bill and gird for a long battle," Michaux said.

    Once again, Democrats, who control both the House and Senate, are squabbling among themselves about which taxes to raise and by how much.

    When House and Senate negotiators meet, as early as next week, senators are expected to emphasize that a majority of their members won't stomach the income tax increase in the House plan and instead want a 1-cent sales tax hike.

    "We would be the only state in the country that is even considering an income tax increase," said Senate leader Marc Basnight, D-Dare. "We should give some consideration to eliminating the income tax" entirely.

    House members are expected to insist they can't ratchet up the sales tax increase any further.

    "The 1 (cent) is just absolutely unacceptable," said Rep. Dan Blue, D-Wake, one of a group of eight Democrats whose votes are essential to passing any tax plan.

    Basnight and key budget leaders in the Senate said the House plan, which raises more than $700 million over two years, does not generate enough money to cover expected increases in state health-care costs and enrollment in schools, community colleges and universities.

    Democrats are pushing for a tax hike because they need to cover about $350 million in budget shortfalls over the next two years, want to replenish state savings accounts to protect the state's bond rating and want to fund two new education programs.

    Republicans counter that spending cuts will resolve the state's fiscal woes.

    A group of eight dissident House Democrats has demanded that the sales tax boost remain at 1/2 cent because a larger increase would put an unfair share of the overall tax hike on the poor and middle class. The eight can enforce their demands because their votes are essential to passing legislation when Democrats control a slim 62-58 majority.

    Thursday's 62-56 vote was along party lines, except for Rep. Monroe Buchanan, R-Mitchell, who sided with Democrats.

    Some signs of flexibility are showing on both sides. House Speaker Jim Black, D-Mecklenburg, said he's confident of finding a middle ground. Basnight said senators likely would accept a 1/4-percentage point income tax increase, which would apply for only three years and only to income of more than $200,000 for joint filers and $120,000 for single filers.

    In addition to the sales and income tax hikes, the House tax package included increases in taxes on liquor, luxury cars and HMOs. The legislation also offers tax breaks to married couples and families with children, plus a three-day sales tax holiday every August. Senate leaders so far have raised no objections to these provisions.

    Lawmakers did modify the liquor tax Thursday. The legislation added a 6 percent sales tax on top of the existing 28 percent excise tax. An amendment Thursday reduced the excise tax to 25 percent.

    Not surprisingly, the tax plan already is being used as political fodder. Former Charlotte mayor Richard Vinroot, a Republican now running for the U.S. Senate, plans to air a radio ad this weekend boasting his no-tax pledge and criticizing Democratic Gov. Mike Easley, who defeated Vinroot in last year's election, for supporting the tax-increase package.

    Citizens for a Sound Economy, the keepers of the no-tax pledge, dispatched e-mails denouncing 10 lawmakers who signed the pledge but voted for the tax plan.

    "We are in a dire situation. We have to make a decision about whether we are going to raise taxes or cut services. It's an either-or situation," said Rep. Andy Dedmon, D-Cleveland, one of the 10. "We've come too far in this state with education. This is not the time to back up."

    *

    Mark Johnson: (704) 358-5941 or mjohnson@charlotteobserver.com.

    How They Voted

    Here's how the Mecklenburg delegation to the N.C. House voted on the tax package that was approved 62-56 Thursday:

    Name, partyVoteMartha Alexander, DYesJim Black, DYesPete Cunningham, DYesBeverly Earle, DYesRuth Easterling, DYesJim Gulley, RNoMichael Harrington, RNoEd McMahan, RNoJohn Rayfield, RNoDrew Saunders, DYesConnie Wilson, RNo

    Highlights of House Tax Package

    The N.C. House passed a new tax plan Thursday that would raise more than $700 million over the next two years. Here's a look at the tax increases (listed
    first) and cuts (marked with minuses), and the financial impact over the next two years. The Senate could reject the plan:

    $474.1 million: 1/2-cent local option sales tax, allowing state to keep tax reimbursements to counties

    $228.4 million: 1/2-point income tax increase on wealthier taxpayers, effective for three years

    $22.2 million: 6 percent sales tax on liquor, paired with reducing excise tax by 3 percentage points

    $33.8 million: 1 percent premium tax on HMOs

    $4.1 million: Removing the sales tax cap on luxury cars

    - $41.7 million: Eliminating marriage penalty

    - $19.8 million: Expanding child tax credit

    - $9.4 million: Three-day sales tax holiday