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In making tax choices, Perdue muddies the waters

RALEIGH — Gov. Beverly Perdue found a way to have her cake and muddy the water, too.

Forgive the mixed metaphor, but how else can you explain continuing most of the “temporary” tax hikes adopted in 2009 — and getting the associated revenue — while giving out a separate but cheaper tax cut that Perdue says will encourage job growth?

Perdue obviously had tough choices to make as she put together a proposed $20 billion state budget for the next fiscal year.

Now that federal stimulus money has dried up, the governor was forced to close a budget gap exceeding $2 billion. She had to do so facing a legislature controlled by Republicans and ready to draw sharp distinctions between themselves and a Democratic governor.

They didn’t wait long.

“She is breaking her promise to end the taxes she raised, she is underfunding our retirement system and she is saddling local governments with hundreds of millions in additional expenses,” Senate leader Phil Berger announced even as Perdue was explaining her budget plan.

Despite those words, I suspect even Republican legislative leaders had to admit privately that Perdue had been pretty crafty.

Her plan allows an income tax surcharge on high-wage earners and businesses to expire but continues three-quarters of the one-penny sales tax hike also adopted in 2009.

Where the governor muddies the political waters is that she would lower the corporate tax rate from 6.9 percent to 4.9 percent and provide a one-time tax credit for small business.

Keeping three-quarters of the sales tax hike nets the state $827 million. The cost of the corporate tax rate reduction, because it wouldn’t take effect until January, is only $115 million in the fiscal first year. The cost of the small business tax credit is $65 million.

Perdue couched the proposal this way: Keeping the sales tax is about protecting teaching jobs and public education; lowering the corporate tax is about making North Carolina more competitive with surrounding states and attracting jobs.

Of course, she doesn’t just balance the budget by netting $647 million in the game of guess-which-tax-is-under-the-cup.

Perdue’s budget makes some cuts that will be felt.

Even if teaching jobs aren’t specifically touched, the plan does call for eliminating about 4,000 nonteaching jobs within the public schools. Through early retirements, layoffs and the elimination of unfilled state jobs, the budget anticipates chopping roughly 10,000 jobs throughout state government.

It would also push more expenses, including school bus purchases and school workers’ compensation claims, down to the county government level.

It even calls for closing state parks two days a week.

Now, the new Republican majority in the legislature gets their turn.

Republican legislators have pledged to allow all of the 2009 tax hikes to expire on schedule on July 1, to cut their way out of the mess.

The fight ahead — between governor and legislature — will likely be over teaching jobs and whose tax plan is better.

Perdue may lose but has armed herself with something.

Scott Mooneyham writes about North Carolina politics for the Capitol Press Association.

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