That’s supposed to be the devastating comeback whenever one challenges the direction of North Carolina’s recent fiscal policies.
Since the onset of recession in 2000, the state has experienced five straight fiscal years in which the state budget has been out of balance at some point. Now two more fiscal years can be added — 2005-06 and 2006-07 — since Gov. Mike Easley and legislative leaders say these budgets will also show deficits without new taxes.
Politicians in Raleigh responded in various ways. First and foremost, they raised taxes several times, imposing an average of about $1 billion in higher taxes annually. Second, they did, in fact, hold state spending to the slowest sustained growth rate in decades, reducing appropriations in some areas while allowing for increases in others. Third, they have used shell games in which money was pilfered from local-government coffers and siphoned from “trust” funds.
As the 2005 budget debate unfolds, however, its nature has changed. No more can Easley, House Speaker Jim Black, or Senate leader Marc Basnight claim that they are forced to raise taxes just to maintain existing services.
The governor’s budget includes plenty of new and expanded programs. It anticipates spending growth next year of nearly $1 billion, or about 6 percent. Obviously, that’s the chief reason why the budget appears to be $1.1 billion out of whack, a gap Easley proposes to cover mostly with higher taxes ($741 million).
When challenged on such policies, our leaders typically crack a knowing smile, cackle smugly, and then say, “well, so-and-so, what would you do?”
When speaking to audiences who lack specific knowledge about the state budget, the politicians find themselves luxuriating in a reassuring silence.
But the reality is that balancing the budget without tax increases — indeed, while simultaneously cutting our state’s painfully high income-tax rates — is possible. And it does not require a slash-and-burn job. You just need a clear set of budget priorities and a healthy respect for the state constitution.
The think tank I head, the John Locke Foundation, has issued alternative state budgets since 1995. They are widely disseminated, posted online (www.JohnLocke.org), and contain line-by-line recommendations. We do these in part to be helpful in identifying specific savings — which have on occasion been implemented by the General Assembly, I’m glad to say — and in part to illustrate that sound philosophical principles can also be practical.
Here are some advance elements of the proposal my staff will soon release for the next two fiscal years:
Overall General Fund spending is held at $15.8 billion for FY 2005-06 and $16.1 billion for FY 2006-07. That’s an increase of $254 million, or nearly 2 percent, over the biennium, compared with Easley’s 10 percent.
Most of the $1.5 billion in budget-savings recommendations are found in Medicaid, corporate welfare, administrative reorganization, and educational expenditures other than classroom teachers. Our plan still increases health and human services spending by 2.6 percent over two years and education spending by 4.1 percent.
Our budget lets the 8.25 percent income-tax rate and a half-penny on the sales tax rate expire as scheduled, rather than be reimposed as Easley wants, thus saving taxpayers almost half-a-billion dollars. In addition, it cuts the top tax rate on personal and corporate income to 6 percent, which along with other changes yields a net tax cut of about $700 million.
Our budget gives state employees an average 3.5 percent raise, compared to Easley’s 2 percent, though of course it also calls for fewer state workers. It proposes changes in the Highway Fund, as well, to end the diversion of gas and car taxes to non-highway purposes and to redirect hundreds of millions of dollars to critical road projects and maintenance.
Don’t let anyone succeed in shutting down a full debate over North Carolina’s fiscal priorities by suggesting that there are no options other than taxes or lotteries. What is really lacking in Raleigh is the political will to employ them.
John Hood is president of the John Locke Foundation, publisher of Carolina Journal.com, and host of the statewide program “Carolina Journal Radio.”
