Parties Split on Budget Rescue

Democratic House leaders’ plans for a $440 million tax increase package immediately ran into opposition Tuesday, with Republicans rallying to try to block the legislation in the narrowly divided chamber.

The House Finance Committee starts debating the tax package this morning, hashing out criticism of the proposals to raise the income tax on the wealthy, and sales and liquor taxes.

“There are sections of this state that are in an economic recession,” said Rep. Connie Wilson, R-Mecklenburg. “This bill will make sure the rest of the state follows.”

House Speaker Jim Black, D-Mecklenburg, said Democrats, who control the House in a 62 to 58 split, have enough votes lined up to pass the tax bill but acknowledged the margin is thin.

“Ever since I’ve been speaker, everything we’ve done has been close,” Black said. “When you have people who want to create chaos instead of solving the state’s problems, that makes it tough.”

Democrats, acknowledging that their 1/2-cent sales tax hike would disproportionately burden lower- and middle-income taxpayers, balanced their package by, first, hitting the rich. The legislation raises the income tax from 7.75 percent to 8.75 percent on those who earn $200,000 or more and eliminates the $1,500 sales tax cap on luxury cars.

Next, the proposal gives married couples a larger tax deduction and raises the child tax credit, measures intended to benefit the lower and middle class.

The money raised through the new taxes is intended to make up for a projected decline in revenue this year and stabilize the state reserves and cash flow to please bond rating agencies that determine the state’s credit rating.

House Minority Leader Leo Daughtry, R-Johnston, said Republican lawmakers are “pretty solid” in their opposition, insisting that spending cuts will solve the state’s budget problems. Daughtry complained that Democrats last week sounded open to ideas other than tax increases.

“On Thursday of last week, everything was on the table,” he said. “Now it’s Tuesday and we have a $500 million tax increase.”

Rep. Gregg Thompson, R-Mitchell, criticized the income tax boost on the wealthy as penalizing people “because they succeed.”

Black appeared frustrated at Republicans’ repeated calls for spending cuts, which he called “shots in the dark.”

“Keep cutting. Cut where?” he said, emphasizing that House leaders already had sliced $600 million before turning to taxes.

Interest groups began checking into the debate Tuesday, with the conservative Citizens for a Sound Economy warning that legislators are “digging deeper into our pockets” just as taxpayers are getting modest rebates from Washington.

The N.C. Association of Educators, which represents the state’s public school teachers and frequently backs Democrats, encouraged members and supporters to call or e-mail their legislators.

If the Democrats’ tax package fails, teachers’ “bonuses, cost of living adjustments and other funding likely will be eliminated for two years,” an NCAE bulletin warned.

Black and other Democratic leaders must decide whether to push the tax package as a separate bill or roll it into the proposed state budget.

Including the taxes in the budget would force lawmakers to make one vote, likely making it more difficult for them to vote ‘No.’

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

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Money Sources

Democrats’ tax plan would raise $440.4 million:

+$202.1 million: Increase sales tax 1/2 cent

+$251.1 million: Raise income tax to 8.75 percent on incomes of more than $200,000

+$1.7 million: Remove $1,500 tax cap on luxury cars

+$31.3 million: Tax HMOs at 1 percent

+$15.9 million: Impose 6 percent sales tax on liquor

-$41.0 million: Eliminate marriage penalty

-$20.7 million: Increase child credit