Perdue sees progress as fellow Democrats approve tax plan

Published 12:00 am Tuesday, December 1, 2009

RALEIGH (AP) ó North Carolina legislative leaders completed Thursday a retooled $1 billion tax plan that includes an income tax surcharge for higher wage earners to secure a state budget deal and seek to allay concerns of Gov. Beverly Perdue.
House and Senate Democrats reached a tentative agreement on a package that’s largely similar to one that fizzled last week when Perdue said she wouldn’t accept a provision that required an extra 2 percent on everyone who owed income taxes.
That piece has been adjusted so that low- and some middle-income residents and families would avoid paying the 2 percent surcharge. But the wealthiest taxpayers ó couples whose taxable income is above $250,000, for example ó would face a 3 percent increase on income tax bills.
Perdue wouldn’t commit completely to the new plan late Thursday, which is a key element of a roughly $19 billion spending plan for state government that is almost worked out.
Perdue told lawmakers she doesn’t want an income tax plan that hurts working families and wants some cuts restored to the public schools, particularly on funding to hire teachers.
“The details of the General Assembly’s revenue package continue to evolve, but that’s only part of the picture. I also need to see the spending plan,” Perdue said in a statement. “With that knowledge of where I stand, today they seem to be making progress.”
A final compromise budget could be voted upon next week, tolling this year’s session would soon end.
“It’s time we slowed the process to begin winding down,” House Speaker Joe Hackney, D-Orange, told colleagues about wrapping up committee work.
The tax proposal would generate $990 million this year also by raising the sales tax most consumers pay from 6.75 percent to 7.75 percent through mid-2011, increasing the cigarette tax by 10 cents per pack and raising excise taxes on beer, wine and liquor.
The individual income tax surcharge, and a corresponding 3 percent surcharge on corporate income tax would last through 2010.
Negotiators responded to Perdue’s concerns on individual income taxes, arguing that 87 percent of taxpayers would be exempt from the surcharge. But some filers whose taxable income with deductions and adjustments are as low as $60,000 for single filers would still pay the 2 percent surcharge.
“We’ve given (Perdue’s office) general answers about where we’re going,” said House Majority Leader Hugh Holliman, D-Davidson. “So we want to touch all the bases.”
Also Thursday, the House and Senate approved a third stopgap spending measure this year to direct how Perdue should spend with no permanent plan in place a month into the new fiscal year. It was sent to Perdue for her signature.
It follows the current temporary measure that expires Friday night by telling Perdue and state agencies to keep spending austerely ó no more than 84 percent of what was approved in last year’s $21 billion budget.
The so-called “continuing resolution” has no expiration date. That shifts some pressure to Perdue, who has frustrated fellow Democrats in recent weeks for what they contend are her shifting tone on negotiations.
If lawmakers can’t conclude a deal on spending ó or if Perdue can’t sign on to a deal ó the governor would have the constitutional duty to keep spending within the budget levels the Legislature set for the foreseeable future.
“It’s up to the governor to take us the rest of the way,” said Rep. Mickey Michaux, D-Durham.
Republicans, in the minority in both chambers, have said a $4.7 billion budget gap is overstated and that additional taxes aren’t required if spending was prioritized. The fact that state government has operated last month with no new taxes “demonstrates that we are able to survive on the revenue base we have now” said House Minority Leader Paul Stam, R-Wake.
The tax package also would require local governments to give up two-thirds of the $33 million in combined alcohol excise taxes they receive annually.
The agreement also would authorize House and Senate tax leaders to keep working into the fall on a proposal to overhaul the state tax system. The Senate this year sought the long-term tax fix.
The Senate’s plan, based on the recommendations of blue-ribbon commissions since the 1990s, would expand the number of services subject to sales tax, lower overall tax rates and reduce income tax exemptions and credits. House Democrats and Perdue were cool to implementing a plan late in the session.
House and Senate spending negotiations continued late Thursday.
Michaux said negotiators had fewer than a dozen major points yet to resolve, including closing youth homes and whether to continue discounting university athletic and academic scholarships for out-of-state residents, with taxpayers picking up the difference.