North Carolina already suffers from the highest per-capita tax burden of any Southern state. It appears that the General Assembly will make matters even worse.

The state Senate recently passed a budget that imposes tax increases of $778,000,000 in Fiscal Year 2005-06, and $973,000,000 in Fiscal Year 2006-07. The measure passed on a straight party-line vote, with every Democrat voting in favor of the budget and every Republican voting against.

The leadership of the General Assembly has blamed recent tax hikes on the lackluster economy. They claimed that, due to declining revenues, it was necessary to increase taxes just to maintain current programs.

The politicians have no such excuse this year. Despite a few small reductions, the Senate budget increases overall spending by more than one-thousand million dollars, or about seven percent.

The Senate budget raises income tax rates on middle-class families and increases death (inheritance) taxes. It extends the sales tax to numerous items that are currently not taxed, and make permanent the “temporary” half-cent sales tax increase passed in 2001. Fees for vehicle registrations and renewing a driver’s license are increased.

The bill raises the cigarette tax by 35 cents a pack, or $3.50 per carton, an increase of over $250 per year for a two-pack-a-day smoker.

The increase in the cigarette tax would affect non-smokers and smokers alike. Many of the cigarettes sold in North Carolina are bought by residents of states with higher tobacco taxes. Iredell County businesses that sell cigarettes to residents of other states provide jobs for scores of local citizens and generate hundreds of thousands of dollars in local sales tax revenues. If the cigarette tax is significantly increased, this business would be lost to states with a lower tobacco tax.

The Senate budget does include small, one-half of one percent reductions in the top income and corporate tax rates, which would take effect in 2007.

As this is written, the state House has not acted on the Senate budget. It is almost certain that some changes will be made, but it is likely the final budget will include significant tax increases.