A Senate Finance Committee endorsed the plan Tuesday afternoon. It will now head to the Senate floor, where it must pass two floor votes.
Most of the income from the proposal will come from a half-cent statewide increase in sales tax and the creation of a higher income tax bracket for the wealthy.
The Senate proposal is similar to a House proposal passed Aug. 30 but generates an additional $300 million in revenue during the next two fiscal years as a result of several targeted tax increases. Unlike the House proposal, the Senate proposal would create a tax on satellite television and increase taxes on some long-distance phone calls. But the primary difference between the two proposals deals with whether state or local governments will be given the power to initiate the sales tax increase and when the increase will begin.
The House proposal left the half-cent sales tax hike in the hands of county governments, while taking away $300 million in reimbursements the state now pays to counties.
The modified Senate proposal would initiate the sales tax statewide Oct. 16 and still provide county governments with the reimbursement payments until the end of the 2003 fiscal year.
At that point, county governments would have the option of keeping the half-cent increase or losing millions in revenue.
The N.C. General Assembly has been debating how to fix a multi-million dollar shortfall since February. Legislators still have not passed a budget for the fiscal year that started July 1.
Sen. John Kerr, D-Greene, said it is time to stop cutting programs and state services and raise taxes in order to solve the state's budget crisis.
"It's time for this General Assembly to control its destiny," Kerr said. "We need to do it and do it in a correct and honorable way."
But Senate Republicans questioned why the General Assembly would raise taxes even though the state's total revenue is predicted to grow by $1.2 billion over the next two years.
Minority Leader Patrick Ballantine, R-Carteret, said the projected revenue growth would cover the state's shortages for the next two years.
But committee Chairman David Hoyle, D-Gaston, said legislators have no choice in the matter. Hoyle, pointing to the low ranking UNC received in the U.S. News & World Report for faculty pay, said the situation will only worsen if taxes are not raised. "(Legislators) simply cannot balance this year's budget without significant cuts in education," he said.
But Ballantine added that legislators could avoid a tax increase by cutting state programs and services.
Ballantine also questioned the amount Democrats have claimed to cut from the state budget, citing figures that ranged from $600 to $800 million.
"(Democrats) don't have a set number because there's not one," he said. "(Democrats) throw numbers around like it's going out of style. But the numbers aren't true."
Hoyle asked Ballantine angrily, "Are you calling me a liar?"
But the atmosphere soon calmed down, and legislators continued their debate.
Sen. Virginia Foxx, R-Alleghany, said taking away the reimbursements from county governments would force them to raise taxes.
Sen. Howard Lee, D-Orange, said that if both chambers can agree on the tax package, the Senate might pass a state budget as early as next week.
Lee added that he was pleased the proposals protect educational funding.
Lee said, "If we can't do what's right for education ... then none of us deserve to be here."
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