Temporary taxes to end the stalemate? Let’s hope not.

According to one recent media report, the NC House has a new idea for breaking the revenue stalemate – temporary tax increases.

If this is the case, it is a disappointing development considering that the Senate, House and Governor so far have all presented versions of permanent, reform-minded revenue packages that will not only help to raise the revenues needed for the next few years but will also create a more stable and fair tax system for the future.

There is emerging consensus amongst economists that the recovery will be “L-shaped” (or at best “U-shaped”) rather than “V-shaped.” In other words, it is going to be a while before the economy turns around. And history has shown us that revenue recovery lags economic recovery. The General Assembly’s chief economist, Barry Boardman, told legislators last month that it will be 2013-2014 at the earliest before North Carolina’s tax system is able to generate the same amount of revenue that it was projected to generate just last year.

Following the 2001 recession states faced shortfalls for four consecutive years (FYs 2002 through 2005). Given the severity of the current recession, the magnitude of the resulting budget gaps, and the likely trajectory of the economic recovery, it is hard to imagine that the state’s budget problems won’t continue for at least 3 more years, probably more like 5-6, or even longer. And, keep in mind that the federal recovery dollars the state has received will expire after FY10-11.

If members of the General Assembly don’t want to keep coming back year after year and going through the painful process of renewing temporary taxes (ala 2003, 2005 and 2007) they should enact permanent, reform-minded measures now, not quick fixes that only postpone the real work.

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