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Perdue’s revenue proposal: A greatest hits collection?

Today’s letter to lawmakers from Governor Perdue in which she lays out the terms of a tax package to help break the budget deadlock (the N&O has a link here) is another interesting and worthwhile contribution to the debate on Jones Street.

Though the headline item is her idea of an “emergency” 13-month, one-cent hike in the general sales tax, the plan is in many ways a compilation of provisions from her original plan, the Senate plan and the House plan – a greatest hits collection, if you will.

As with most “greatest hits” compilations, some “tracks” are stronger than others. On the positive side, the Governor’s plan would take steps to close corporate tax loopholes, places a 2-year surcharge on the income tax payments of those making over $500,000 per year, and broadens the sales tax base to include several categories of currently untaxed services beginning Jan. 1 2010. Moreover, the plan would raise more than $1.6 billion in the first year and over $1.7 billion in the second year, significantly more than the current targets being used by budget negotiators.

The less enjoyable tracks on this album include the fact that the 1% temporary sales tax hike plus the proposed increases in cigarette and alcohol taxes (by far the two largest sources of new revenue in the first year) mean that the plan will disproportionately impact low- and moderate-income taxpayers and the proposed 1 percentage point increase in the state EITC will fall well short of blunting this impact. Furthermore, a good case can be made that the temporary surcharge on top income-earners should be permanent because these taxpayers, even under the new plan that broadens the income tax base to adjusted gross income, will pay far less in taxes as a share of their incomes than low- and middle-income taxpayers.

On the whole, this greatest hits collection is worth a listen. Kudos to the governor and her team for putting forward a thoughtful plan for breaking the current deadlock that is the legislative tax debates.

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