From The Daily Reflector of Greenville, June 23

North Carolina residents should expect to see higher taxes included when the state approves a budget for the 2009-10 fiscal year. Democratic leaders in the General Assembly and Gov. Beverly Perdue seem in agreement that a tax hike will help close a $4.7 billion revenue shortfall, but continue to debate the size and scope of such a plan.

Two goals are paramount. The final compromise that emerges should seek to equitably collect revenue in a way that reflects a modern and dynamic state economy, unlike the Depression-era code now in effect. And officials should be restrained by the ongoing economic crisis, lest it plunge the state into fiscal ruin.

The governor came to South Central High School in Winterville June 22 to drum up support for the tax proposal she unveiled recently. While short of specifics, Perdue wants lawmakers to raise taxes by a whopping $1.5 billion, arguing that the increased revenue would allow the restoration of education cuts now included in the budget blueprints. She said the state should avoid cutting teachers, reducing salaries and increasing class size at all costs.

That proposal represents a twofold jump over the tax hikes included in the House budget approved earlier this month. That spending plan would impose $780 million in higher taxes, including a larger and more expansive sales tax and the creation of an additional tax bracket for the wealthiest state residents and establish a tax for limited liability companies.

Most appealing is a plan circulating in the Senate, which would not merely adjust the existing code but would dramatically overhaul it instead.

The Senate approved its budget plan in April, long before slumping tax collections and new projects tallied the size of the budget shortfall at $4.7 billion. Yet, as it worked to develop that spending plan, it also crafted a tax reform proposal that would make the state’s system of revenue collection fairer and simpler.

That plan would lower income tax rates, the sales tax and the corporate tax, but would dramatically expand the reach of the sales tax and eliminate many loopholes. At the time, it was estimated to bring in $580 million, but has been rewritten to generate between $1 billion and $1.4 billion annually.

North Carolina faces the worst budget crisis in memory and should respond by exploring solutions that are both thoughtful and innovative. Long overdue reform of the state’s tax code should be the focus, and the Senate plan should be its framework.