The state Senate gave preliminary approval to a $19.7 billion budget Wednesday that includes a tax cut for businesses that Republicans say will create jobs but which a Democratic dissenter argues would draw money away from necessary public services.
The budget was approved along party lines, with all Democrats present voting against it. Education spending and taxes have been at the center of the debate.
Gov. Bev Perdue says the Senate budget would force local districts to lay off school personnel. Her office distributed information after the Senate vote on the amounts each district stands to lose. Perdue's budget proposal kept part of a temporary sales tax increase adopted two years ago to see the state through the depths of the recession.
In a statement, Perdue spokesman Chrissy Pearson said the budget choices have made Perdue angrier than any other issue she has faced during her time in office.
The GOP-authored budget drops the temporary 1-cent temporary sales tax and a temporary income tax surcharge on top earners, and gives businesses, excluding those that pay the corporate tax, a tax exemption on their first $50,000 of income. The business tax cut is estimated to cost the state about $131.6 million next year and create about 1,100 jobs according to report from the Carolina Center for Competitive Economies at UNC Kenan-Flagler Business School.
Republicans contend that letting the sales and individual income taxes expire and adopting the business tax cut will create 17,000 jobs by this time next year. They are relying on the report from the Competitive Economies Center for their data.
Democrats haven't said much in public about the business tax cut, but Sen. Dan Clodfelter, a Charlotte Democrat, took it on during the budget debate.
People would figure out how to use the law to avoid paying taxes, he said, making the cut more expensive than $131.6 million. Clodfelter said he and other lawyers, as well as others in his firm, accounting firms and more would qualify. The state could use the money it gives up in the business tax cut to restore programs eliminated in the budget, including drug courts and the Teaching Fellows program, he said.
"I appreciate the benefit, but budgets are about choices and those choices have moral implications and not just economic ones," he said.
Sen. Bob Rucho, the Mecklenburg County Republican who worked on the tax plan, said it would cost individuals more to try to take advantage of the business tax cut than the maximum $3,500 they would save.
"This is an energizing-the-economy bill," Rucho said in an interview. "Government creates the environment for jobs to be created in the private sector."
Alexandra Sirota, director of the N.C. Budget & Tax Center at the N.C. Justice Center said the jobs created would be more than offset by job cuts in the budget.
"On net, the Senate proposal will not create jobs," she said. "It will be a job loser because we know there are so many jobs that will be lost both directly and indirectly," she said.
States with lower tax rates tend to have move vigorous economic growth, said Mike Walden, an economist at N.C. State University.
But tax cuts don't top the list of most important growth factors, he said. The skill of the labor force, including the percentage of residents with college degrees, is a stronger economic stimulant, he said.
The Senate is expected to give the budget its final approval today; then, it goes to the House for votes Friday and Saturday.
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