RALEIGH (AP) ó North Carolina consumers are about to feel another pinch in their wallets at the mall, the convenience store and most every retailer in between.
The state’s sales tax goes up a full penny Tuesday, bringing the total rate charged in most counties to 7.75 percent. At the same time, cigarettes, beer, wine and liquor will have higher excise taxes, all of which are likely to be passed on to retail buyers.
Lawmakers and Gov. Beverly Perdue agreed to raise these taxes in early August as part of a $991 million package designed to narrow a portion of a budget gap for this year projected by Democratic leaders at more than $4 billion. The rest of the gap was closed with federal stimulus dollars and spending cuts.
Without additional revenues, spending reductions demanded of state agencies and public schools would be worse, one legislative leader said Monday.
“There’s nobody that wants to increase taxes, but concurrently nobody wanted to lay off (more) school teachers or cut health programs or let inmates out of jail any time soon,” said Rep. Pryor Gibson, D-Anson, co-chairman of the House Finance Committee.
With the state’s unemployment rate stuck around 11 percent recently, Republicans and anti-tax groups contend voters struggling to scrape by won’t ignore the higher sales and excise taxes.
“People are already having to pinch pennies,” said Dallas Woodhouse, director of the state chapter of Americans for Prosperity, a conservative-leaning fiscal watchdog group. “I don’t think there’s any doubt that they’re going to notice.”
The tax changes taking effect Tuesday alone will raise most of the taxes with $876 million this year, according to the General Assembly’s fiscal research staff. The rest almost all will originate from an income tax surcharge on all profitable corporations and the highest individual wage-earners. But they largely won’t be felt until tax returns are filed early next year.
The higher sales and income taxes are considered “temporary. The extra cent charged on every $1 in purchases expires July 1, 2011, while the income tax surcharge expires at the close of 2010.
Perdue and other Democrats hope those taxes won’t be needed then if the economy turns around. But that will be a tall order, as tax analysts project revenues aren’t likely to return to pre-recession levels until 2014.
Lawmakers, however, may try to reduce the overall sales tax rate before the sunset.
House and Senate Democratic leaders have agreed to talk more this fall about changing the tax structure so that many more services are subject to the sales tax. In exchange, the rate would fall markedly.
If a deal is reached, lawmakers could return to the General Assembly by next spring, perhaps before primary elections in early May, to try to pass it.
“They will be very active and looking at the options at some way to spread the pain so to speak,” said Rep. Jim Crawford, D-Granville. “It’s going to be interesting to see how tax reform plays politically in an election year.”
The excise taxes, however, are permanent.
Cigarette taxes will increase by 10 cents per pack to 45 cents, an incremental sign of tobacco’s diminishing political power in North Carolina. Just five years ago, the tax was 5 cents per pack.
But pro-tobacco forces still managed to keep the North Carolina rate among the lowest in the country. Legislators wouldn’t raise the tax by the extra $1 per pack that Perdue and health advocates sought as a way to discourage teen smoking while generating more revenues.
“The problem with a very low increase is that it really doesn’t yield a real health benefit, because it doesn’t change behavior,” said Pam Seamans with the North Carolina Alliance for Health.
The beer and wine tax rate essentially hasn’t changed in at least 30 years. Alcohol buyers may take a second look when they read sales receipts come Tuesday because they’ll also have to pay the higher sales tax on their purchases, too.
“The state is really double-dipping,” said Dean Plunkett, executive director of the N.C. Beer and Wine Wholesalers Association.