THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Tuesday, December 13, 1994 TAG: 9412130262
SECTION: LOCAL PAGE: B3 EDITION: NORTH CAROLINA
SOURCE: BY DENNIS PATTERSON, ASSOCIATED PRESS
DATELINE: RALEIGH LENGTH: Medium: 94 lines
In the battle for details, Gov. James B. Hunt has jumped ahead of the Republicans when it comes to a tax-reduction package.
Republicans took the early lead before the election when they promised a specific tax cut - at least $200 million in personal income taxes.
Before that, Hunt and Democrats in the legislature had made vague references to tax relief next year, even setting aside $28 million in this year's budget for unspecified tax relief next year. But all of the debate over tax relief this year has focused on business taxes, or taxes opposed by wealthy businessmen.
Republicans surprised everyone by naming personal income taxes as their top target, since they usually are considered bigger friends of business than Democrats.
But many of them said privately they expected the courts to take care of their business friends by ruling that the intangibles tax on securities, bonds and other investments is unconstitutional.
The judges, however, threw a wrench into that scenario Friday when they ruled that the intangibles tax is valid because it balances higher income tax payments paid by North Carolina-based businesses with lower taxes on their stock.
By the time that ruling had come down, Hunt had unveiled his $483 million tax-reduction plan, which calls for eliminating the intangibles tax, cutting the corporate income tax rate from 7.75 percent to 7 percent, increasing the personal exemption on state tax returns, creating a tax credit of $50 per child and increasing the homestead exemption for elderly taxpayers.
The heavy emphasis on tax reduction for working families came after two studies - one by a Hunt task force and the other by businesses - showed that North Carolina is not a high-tax state for business. Those findings came despite constant complaints by businessmen that their taxes should be reduced.
Hunt's proposal puts the ball in the Republican court. But state Republican Party Chairman Jack Hawke says nobody should expect Hunt and the Republicans to get into a bidding war over who can cut the most taxes.
``We're going to do what's responsible,'' Hawke said.
While details have slowly been trickling out about what taxes they will cut, the Democrats and Hunt have been coy about another set of details - how they will pay for those reductions.
Hunt is promising now, as he has for the last two years, to streamline government without sacrificing services.
Asked what specific programs or agencies will feel the budget ax, Hunt said he will reveal those details when he presents his budget to the legislature in January.
Republicans have been just as forthcoming about where they plan to make cuts.
A late draft of their pre-election ``contract'' with voters called for eliminating 10,000 state jobs. But with their eyes set on taking control of the Wake County legislative delegation, which represents a lot of state workers, the GOP leaders trimmed that promise from their final, public version.
One thing is certain - the way Hunt proposes to pay for the tax reductions will not be the same as Republicans propose.
While he may want to cut programs, he is unlikely to touch his pet projects, like Smart Start. But Republicans have shown little love for the early-childhood education initiative in its first two years.
They are likely to charge at some old targets - the Microelectronics Center and the Department of Public Instruction, although there will have to be more. You could eliminate DPI and the Microelectronics Center completely and still not have enough money to finance their tax cut.
House Democrats, who will be in the minority when the General Assembly reconvenes, have been cautious about the tax reduction talk.
Rep. Jim Black, who was elected minority leader last week, said it would be nice to reduce taxes, but Democrats don't want to do anything to hurt the state's fiscal integrity.
They can read public opinion polls and the Nov. 8 election results as well as anyone else, but many remaining Democrats lived through the 1991 budget shortfall that forced them to fill a $1.2 billion budget shortfall.
It took the largest package of spending cuts and the largest tax increase in state history to balance the books again.
Many Democrats privately blamed the elimination of the inventory tax on business during Gov. Jim Martin's administration for opening a budget hole that grew into the massive shortfall.
And they are leery of doing it again with another tax cut.
Democrats figure in two years, or four, they may again be in sole control of the legislature.
And they don't want to have to pull the state's finances out of the rivers of red ink again.
Hunt, who was out of office when his fellow Democrats faced that painful chore, will have a tough time selling to some of them that his numbers are solid and the state will not end up in another financial crisis a few years down the road. by CNB