The four legislative sessions from 2005 to 2008 in Raleigh feature sharp increases in state spending, more targeted tax breaks with no broad tax relief, and a dramatic and unaccountable rise in state debt.
Growth in Spending
- The last four budgets (using FY 2004-05 as a baseline) increase spending by nearly $5.5 billion, an overall increase of 34 percent.
- Adjusted for population growth, spending still climbs by 24 percent per capita.
- Average annual spending growth over the four years is 7.65 percent.
- Spending growth in specific areas over the last four budgets:
- Debt Service: 51 percent
- UNC System: 43 percent (this number does not include more than $1 billion in debt financing of capital projects authorized in the past four budgets)
- Medicaid: 35 percent
- Transportation : 21 percent
State Debt Increases Dramatically – Without Voter Approval
- State lawmakers authorize $2.2 billion in new state debt in four years. None of it is approved by voters. Because “special indebtedness” is used, the bonds will most likely be issued at a higher interest rate than bonds that do receive voter approval. The extra interest payments will cost taxpayers millions over the next several years.
- Annual service on state debt rises by 51 percent over the last four years – an increase of more than $216 million. As lawmakers continue to accumulate ever more state debt, this amount will continue to climb. The more money needed to finance state debt, the less money there will be available in the economy to create jobs, or for state government to finance public safety, roads, schools, etc.
- The state of North Carolina is liable for $24 billion in unfunded retiree health premium benefits, according to a March 2007 Fiscal Research report. Basically, the amount of future retiree health benefit payments already accrued by current and future retirees is calculated to be $24 billion, with no money set aside to pay for these future costs. The General Assembly makes no progress in addressing this massive shortfall during the four sessions from 2005-20008. Legislation to annually set aside more money towards future benefits and to establish a Trust Fund all die in committee.
Significant Tax Changes
- Increase tobacco tax (from 5 cents to 30 cents per pack through June 30, 2006; then to 35 cents per pack July 1, 2006).
- Increase tax on telecommunications from 6 percent to 7 percent.
- Increase tax on home satellite television services from 5 percent to 7 percent.
- Increase tax on liquor from 6 percent to 7 percent.
- Extend the 8.25 percent individual income tax rate for two more years (in spite of original promise of their sunset in 2003).
- Extend the 4.5 percent state sales tax rate (this ½ cent increase was likewise originally promised to sunset in 2003).
- Increase tax on cable subscribers from 5 percent to 7 percent.
- Finally allow ¼ cent of the ½ cent “temporary” state sales tax rate to sunset effective Dec. 1, 2006. The remaining ¼ cent is not assigned a targeted sunset date in this session.
- Provide for the “temporary” top individual income tax rate of 8.25 percent to fall to 8 percent effective taxable year beginning Jan. 1, 2007, and then fully sunset as of Jan. 1, 2008.
- Cap the variable segment of the state gas tax so that the maximum amount of the tax cannot exceed 30.15 cents per gallon. The cap is enacted for FY 2006-07 only.
- Create a tax credit for Google estimated at $2.25 million in the current year alone.
- Enact several other tax credits for specific industries or projects, including renewable fuel facility construction, biodiesel providers and professional motorsports teams.
- Make the remaining ¼ cent “temporary” sales tax permanent. This move translates into a tax increase estimated at roughly $258 million annually.
- Budgets roughly $2.3 million for tax credits for the construction of renewable fuel facilities.
- Renew the gas tax cap, and schedules it to continue until June 30, 2009.
- Approve a state-level “refundable” earned income tax credit (EITC). The credit is to be equal to 3.5 percent of the federal credit awarded to eligible recipients, estimated at roughly $5 per month per beneficiary. Creating a refundable credit means that if the size of the credit exceeds a recipient’s tax liability, they will receive payment to make up the difference. The credit also applies to individuals who pay no taxes.
- Create a tax credit for those adopting a child.
- Close a corporate tax loophole by implementing the “combined reporting” method for business tax filing.
- Extend several targeted tax credits, including: the research and development tax credit until 2014, the low income housing credit until 2015, the state ports credit until 2014 and the small business health benefit credit until 2010.
- Increase the amount of the state “refundable” EITC (just created last year but not yet implemented) from 3.5 percent to 5 percent of the federal amount, increasing the average recipient’s benefit by about $2 per month.
- Create a property tax exemption for honorably discharged disabled veterans.
- Enact a sales tax holiday for energy efficient appliances.