On behalf of the nearly 8,000 members of the National Taxpayers Union (NTU) in North Carolina, I write in strong opposition to Governor Easley's massive tax increases as outlined in his 2005-2006 budget. Although the budget plan would lower the 8.25 percent tax rate on earners making more than $100,000, it would more than make up for those tax cuts with regressive tax increases on cigarettes, candy, cable and satellite television, newspapers, and liquor, not to mention the retention of a "temporary" half-cent sales tax hike that was due to sunset at the end of June.
It is unconscionable for the Governor to claim that the state is in a "budgetary crisis" and push massive tax hikes to fill a billion-dollar budget gap, but then to propose spending growth of 5.5 percent in just one year. North Carolina is suffering from not only the effects of the large income tax hike passed in 2001 that cost taxpayers approximately $1 billion, but also from the Legislature having extended the "temporary" sales tax increase once already. Clearly, the state's elected officials are on their way to breaking their commitment to the voters by making that sales tax increase permanent through repeated extensions.
Among the most egregious tax hikes contained in the Governor's plan is a tax increase on cigarettes from 5 cents to 50 cents per pack by the 2006-2007 budget cycle. This plan unfairly and disproportionately targets tobacco users for spending to be used on education and other general fund uses. North Carolina will already receive $4.6 billion over 25 years from the federal tobacco settlement, but to many politicians, tobacco users exist as nothing more than a source of revenue for an ever-growing state bureaucracy. Of course, in targeting smokers, North Carolina will also be levying a highly regressive tax. In fact, a 1998 study by Congress's Joint Committee on Taxation found that 73 percent of tobacco excise taxes are paid by those earning $50,000 or less.
Instead of levying a massive tax increase on North Carolina citizens, Governor Easley should reduce spending by contracting out government services that can be done more cheaply and better by the private sector and by reforming the education system to include parental choice and a free market for educational services. If North Carolina's elected leaders do indeed choose to make the state's government more efficient, there is no reason why the 8.25 percent top rate of North Carolina's income tax cannot be reduced significantly so as to be more competitive with its neighbors. Please do not hesitate to contact NTU for additional ideas on reforming the state's budget and cutting taxes.
Paul J. Gessing
Director of Government Affairs