Same old solution is back: Raise taxes

North Carolina legislators, already three weeks into the new fiscal year without a budget, have a new plan for raising almost all taxes on everybody in an effort to close the state's budget deficit. A deal reported today involves an increase in sales taxes, a surcharge on everybody's income taxes and new "sin taxes" on tobacco and alcohol.

The deal requires legislators to go against the conventional wisdom that raising taxes during a recession is politically crazy and economically detrimental. While the federal government is passing out stimulus money to get people to spend and businesses to invest, North Carolina will take money out of the economy in order to avoid cuts in the state budget.

The proposal to raise the state sales tax rate by one cent or 0.75 cent is particularly offensive. Earlier in the session, legislators had talked about reforming sales taxes to bring services under the sales tax umbrella. Why should you pay a sales tax on a lawn mower but not on a lawn service? Sales taxes are regressive, taking a larger share of less-affluent taxpayers' income than of more-affluent taxpayers' income. Exempting services, which the wealthy are more likely to use (think of cleaning services, lawn services, legal fees, brokerage services, etc.), than are the poor. The earlier proposal was to include services and reduce the overall rate.

It's not as if the state didn't already have a formidable sales tax rate. The current 6.75 percent combined state/local sales tax rate would rise to 7.5 or 7.75 percent. Even states without a state income tax have lower sales tax rates. Florida's sales tax is 6 percent, and Tennessee's is 7 percent, but those state manage to get by without an income tax. Virginia has a 5 percent sales tax, and South Carolina's is 6 percent.

The proposal before legislators would also add a surcharge to state income taxes of 2 percent, but that would only be for two years — a temporary tax. Followers of state politics know that a promise of a "temporary" tax is as credible as "Of course, I'll respect you in the morning." We're still paying "temporary" taxes from 2001.

"Sin taxes" would also be raised, but the amount is undetermined. Once again, North Carolina's taxes on beer and wine are higher than most neighboring states, and its once-negligible cigarette tax now seems to grow each year.

All of this lends credence to Republicans' perennial complaints that North Carolina has a spending problem, not a revenue problem. The GOP, however, has been so inept at making its point and so shackled by internal bickering and ideological whackos that voters have shunned their candidates. Gov. Bev Perdue's declining approval rating may be an indication that voters are having second thoughts. If these taxes go through, and if the state's recession (unemployment is already above the national rate) lingers, Democrats will have some 'splainin' to do in 2010.