ATLANTA - Gov. Jim Hunt of North Carolina has proposed that the legislature slash nearly $500 million in taxes in preparing the state's fiscal 1996 budget.
Hunt, a Democrat, said the cutbacks could be financed through a wholesale reduction of government spending and services. Only education and corrections would be spared the budget axe.
"When the General Assembly convenes [Jan. 25], I will propose that we cut taxes by $483 million a year," said Hunt at a state educators conference earlier this month. "This will mean lower taxes for every North Carolina taxpayer."
Hunt's plan for fiscal 1966, which begins July 1, 1995, would increase personal-income and homestead exemptions, and offer a $50 per child tax credit. Altogether, individuals in the state would pay $373 million less in taxes during the plan's first year.
A potential $110 million break to businesses would require the repeal of an intangibles tax on stocks and bonds, and the lowering of the current top corporate income tax rate to 7% from 7.75%.
If enacted by the general assembly, the package would be the largest tax cut in state history, and would be phased in over 18 months.
The Legislative Fiscal Office projects 1996 revenues at $9.95 billion with a $663 million surplus.
However, "the governor has limited revenue to use within the expected surplus," said David Crotts, a senior analyst and economist for the Legislative Fiscal Office. "Only $288 million is available in discretionary funds and [most of that] has been pledged to other initiatives.
"Though elections did show [budget] reduction will find support," Crotts said, "the cuts need to be permanent - not smoke and mirrors or deferrals."
"We will likely reduce personnel and eliminate or consolidate departments," said Robert Powell, Hunt's deputy state budget officer. "Staff ratios would reflect the private sector."
The governor's proposals may include a hiring freeze and salary caps, according to legislative sources who declined be identified.
Hunt said the relief package would by financed by "downsizing - budget and personnel flexibility, new technology, and new ways of managing.
"Every major corporation in the United States is bringing this discipline and accountability to its operations," the governor continued in his speech to educators. "It is time that state government did the same."
Hunt's plan comes at a time of rising pressure from state Republicans to slash taxes.
In the November elections, North Carolina Republicans won 25 new seats in the state's House of Representatives to gain control of the chamber for the first time since Reconstruction. Although Democrats also lost ground in the Senate, they still hold a two seat majority.
Before the November elections, the Republicans proposed an income tax cut of $200 million. The Republicans' agenda also contained a vow to reduce the state's "public instruction bureaucracy."
Rep. Leo Daughtry, the Republican House majority leader, said he had "no problems" with Hunt's proposal to cut taxes. Daughtry, who represents Johnston County, added, however, that the governor's proposal is "clearly a political package age with [Hunt's] interest only in the 1996 elections."
"Gov. Hunt is trying to out-Republican the Republicans," said Max Veale, spokesman for House Speaker-elect Harold Brubaker, a Republican from Asheboro. The speaker "will support government reduction, but not to essential services or with intent of coming back with taxes after the '96 elections."
Noting that state government in North Carolina employs over 200,000 people, Veale said that North Carolina could "easily cut $100 million," through employee attrition and the merging of agencies.
Although the speaker supports lower taxes, Brubaker feels a repeal of an intangibles tax, a levy on financial assets, would unfairly burden local governments, Veale said.
"The state will lose only $35 million while locally [the governments] would have a $95 million shortfall," said Veale. "Without serious consideration [of where tax reductions should be pursued! a huge cut could put us back where we were in 1991."
Three years ago, North Carolina's general fund budget suffered a $1.2 billion deficit after a national recession pushed revenue collections below low expectations.
Republican sources said that the governor's proposed repeal of the intangibles tax would also require strong legislative backing because the state Supreme Court recently dismissed a challenge to the levy.
