Easley looks to eliminate short-term tax fix

Gov. Mike Easley announced last week that he plans to allow a pair of tax increases expire next year as originally scheduled.

Easley imposed a statewide half-cent sales tax increase in 2001, and upped the highest personal income tax bracket by .5 percent.

These taxes were originally set to expire in 2003, but Easley extended them because the economy failed to meet expectations.

The sales tax will drop to 4 percent once the taxes expire, but taxes set by local governments still will apply.

The personal income tax now ranges from 6 to 8.25 percent, but when the taxes expire the highest bracket only will be taxed 7.75 percent.

These two taxes have brought in about $500 million annually, but Easley believes that the economy is doing well enough that this revenue will no longer be needed. The money made from these taxes amounts to about a 3 percent increase in revenue.

But Senate President Pro Tem Mark Basnight, D-Dare, thinks it is too early to tell whether these taxes should be allowed to expire.

"We will not only have to look at the revenues and growth of the economy, but we will have to look at its needs as well," said Amy Fulk, Basnight's press secretary. "UNC, for example, might need more money from the state in 2005."

Koleman Strumpf, a UNC economics professor, was a little more optimistic about ending these taxes.

"If the economy stays as it is now for the next year, it does make sense to let them expire," he said. "The economy is better now than it was."

In 2002, Easley needed the extra money because the economy brought in $1.6 billion less than planned. Last week, Easley said he will let the taxes expire because North Carolina is no longer in an economic recession.

The estimated growth rate for the 2005 fiscal year is 5.5 percent, but because accurate tax numbers will not be available until January, it's hard to say how well the economy is doing.

But state Republicans, who have nicknamed Easley "Tax Hike Mike," are skeptical that he will allow the tax increases to expire.

"These taxes were supposed to have expired," said Bill Peaslee, chief of staff for the N.C. Republican Party.

"We are not optimistic because he has gone back on his word before. This is the same governor that has raised taxes three years in a row."

Contact the State & National Editor at stntdesk@unc.edu.