RALEIGH -- Democratic Gov. Bev Perdue on Monday night proposed cutting the corporate income tax, stealing some of the political thunder from the new Republican legislature.
In her second State of the State address, Perdue proposed slashing the corporate income tax to 4.9 percent from 6.9 percent, making it the lowest in the Southeast.
"Right now, we have the highest corporate tax rate in the Southeast," Perdue told a joint session of the legislature. "That means our businesses are paying more taxes when they could be creating jobs."
Cutting the corporate tax would cost $400 million to $600 million, according to state Rep. Mickey Michaux, a Democrat from Durham.
While proposing to cut taxes, Perdue also promised to protect teacher and teacher assistants against budget cuts. And the governor said she would follow through on her delayed campaign promise of starting a program that would allow students to earn a two-year college degree for free if they made good grades.
Republicans cheered her call for corporate tax cuts, and Democrats liked her emphasis on education.
But lawmakers wondered how the governor planned to pay for her proposals in the face of a budget shortfall that Perdue now projects to be $2.4 billion for the fiscal year beginning July 1.
That should become clearer Thursday, when Perdue rolls out her recommendations on how to balance next year's budget.
Republican Senate leader Phil Berger said he was encouraged by Perdue's interest in cutting the corporate tax rate, but said there are plenty of unanswered questions about where she would get the money for other initiatives.
"I think that's why we're in some of the mess that we're in now, some of us promising to do things and not having the money to pay for it," Berger said.
Perdue faces a sharply more conservative climate than the one in which she was elected in 2008. She must deal with the state's first Republican legislature in more than a century,
In shifting to her political right, Perdue is following the lead of former Democratic Gov. Jim Hunt, who, after a Republican landslide in 1994, proposed major tax cuts.
Perdue offered few clues on how she planned to address the budget shortfall in her televised speech.
She struck a generally conservative tone, talking about how the budget had shrunk under her direction, how she was eliminating boards and commissions, and unnecessary rules and regulations, consolidating boards and agencies, merging departments and generally downsizing government.
But she did not say whether she would support more controversial issues, such as extending any of the $1.3 billion in temporary tax increases passed in 2009, or legalizing and regulating video gaming.
'College Promise'
Perdue did promise to revive her 2008 campaign promise to start an initiative to help high school students who maintain grades and meet other criteria to earn a two-year degree. She rebranded the program N.C. Career and College Promise.
The initiative had been delayed because of the recession. But aides said the program would have only a modest cost, because students would be able to take courses at existing community colleges.
Perdue said the budget she will recommend will not cut teacher and teacher assistant positions - although she made no such promise about other state positions.
"There is one thing I will not do: I will not sacrifice our children's future," Perdue said. "We will not eliminate teachers, whose job it is to build that future and the future of our state.
"No governor or legislature in our history has ever walked away from that core responsibility, and I refuse to be the first."
State Sen. Richard Stevens, a Republican budget writer from Cary, said his back-of-the-envelope calculations suggest that Perdue's proposals will cost $1.4 billion, suggesting to him that Perdue will recommend extending the $1.3 billion in temporary taxes.
Perdue lowered her estimate of the shortfall from $2.7 billion to $2.4 billion. Mark Johnson, a Perdue spokesman, said that was accomplished by spreading out the state's payment to the retirement system, and shifting some of the formula school funding to the counties.
Rob Thompson, an organizer with Together NC, a coalition of more than 120 nonprofits, service providers and professional associations, said he was encouraged by Perdue's promises on education, but wishes she had talked about human services, including the mental health system and health care for children
He wondered how Perdue would balance the budget and cut the corporate tax.
"Where will the money come from? That's the main question," he said. "We need to see the budget."
Staff writer Andy Curliss contributed to this story
