JOHN HOOD: Smoke, Drink, Open Your Wallet
Well, she did it -- big time.
As had been widely expected, Gov. Beverly Perdue's proposed 2009-10 state budget includes tax increases on the sale of tobacco and alcohol products. The tax hikes are truly punitive -- nearly tripling the excise tax on cigarettes from 35 cents to $1.35, for example -- and are projected to pilfer about half a billion dollars next year and nearly $700 million the year after that out of the pockets of smokers and drinkers.
I'm glad that the governor did not propose a bigger, broader tax increase. North Carolina's income and sales tax rates are plenty high already.
But that doesn't make it a good or proper policy for state government to pick on North Carolinians who happen to engage in behavior that state politicians either don't like or find it politically expedient to demonize. The tax code ought not to play favorites or punish personal behavior. It should treat all residents fairly by having them pay a single, flat tax rate on their consumed income. It ought not to force low-income North Carolinians to shoulder a higher tax rate than everyone else.
Fashioning a state budget without Perdue's regressive "sin taxes" was certainly possible. The John Locke Foundation's Joe Coletti showed how the day before Perdue's budget debuted, in an alternative-budget plan that included a net tax cut and devoted far much attention to long-term deficits than the Perdue proposal paid.
Coletti proposed hundreds of millions of dollars of additional savings in Medicaid, higher education, and general government expenses. He used some of the savings to cut taxes on families and businesses, with the remainder going to patch a hole in the state health plan and to invest an additional $300 million in the state pension plan, which is on the verge of becoming underfunded.
In her budget, the governor chose to expand funding on educational programs that have no track record of proven success, such as early-college schools. And while targeting some administrative expenses for savings, Perdue did not really make a serious attempt to redirect education dollars to high-priority uses.
Because education represents more than half of the state's General Fund budget, it is impossible to get state spending under control for the long run without applying some common-sense cost controls to educational programs. Although in other areas of the state budget Perdue was admirably willing to challenge the status quo, when it came to education she shrank from the task.
North Carolina education doesn't suffer from a lack of funding. It suffers from a lack of good policies for deploying. I would submit that the governor's approach, while better than some fiscal conservatives may have expected last fall, is unnecessarily risky.
It's important to remember that the federal "stimulus" funds Perdue is using to paper over 8 percent of her budget plan are temporary proceeds from federal borrowing. Lawmakers shouldn't get used to the idea of Washington increasing the federal debt to finance the operating costs of North Carolina state government.
So it would be better for members of the General Assembly to err on the side of more fiscal restraint than the governor has exhibited, not less. For much of this decade, lawmakers came to Raleigh at the beginning of a legislative session, found a structural imbalance in the state budget, and chose to wiggle their way through the session with a combination of gimmicks and "temporary" tax hikes. Such behavior was never leadership. Now it is simply irresponsible and reckless.
The answer is to say no more. No more bailouts. No more pork. No more "stimulus." No more tax increases. No more spending on new, unproven government programs. No more borrowing from Peter to pay Paul to buy stuff from Peter.
And no more special taxes on smokers and drinkers to pay off powerful spending lobbies. North Carolina should be better than that.
John Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.
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