North Carolina's highest wage earners would pay a 3 percent surcharge on their income tax under the latest version of a tax package being discussed Thursday.

Under the plan, a 3 percent surcharge would apply to the income tax liability of those who make more than $250,000-a-year, based on married couples filing jointly, Mark Johnson reports. Those earning between $100,000 and $250,000-a-year would add a 2 percent surcharge, according to  House and Senate leaders.

The plan hit a snag, though, because the 2 percent surcharge would hit single taxpayers who make $60,000-a-year or more. Gov. Beverly Perdue doesn't want the surcharge to reach that low of an income level, and it was her opposition last week to a 2 percent surcharge on all taxpayers that derailed a similar tax plan.

Senate Democrats have their tax plan ready.

According to a document received by the Associated Press, the Senate Finance Committee will consider a proposal today that would reduce the sales tax rate but expand the services it covers, repeal the food tax and raise sin taxes.

The plan would raise $600 million a year, more than the $500 million in revenue missing from the Senate budget passed earlier this month.

Under the plan:

* The sales tax rate in most counties would drop from 6.75 percent to 6 percent.

* The sales tax would be expanded to cover moving services, building repairs and downloaded music.

* Corporate and individual income tax rates would go down.

* The 2 percent tax on food at grocery stores and other retailers would be repealed.

* The cigarette tax would be increased 15 cents per pack.

* The alcohol excise tax would be increased.

The House is also expected to put together its own proposals for modernizing the tax code.

The Institute for Emerging Issues says its time to revamp state taxes.

A committee created by the Raleigh-based think tank said Tuesday that the General Assembly should pass tax reform this year to help keep North Carolina business-friendly.

The committee said sales taxes and corporate and personal income taxes should be reduced, while exemptions and loopholes are eliminated.

Former Charlotte Mayor Richard Vinroot, who ran for governor as a Republican, co-chaired the committee. He said local governments should have more options to raise their own funds.

Senate Democrats are considering whether to lower tax rates while taxing some services. (AP)

A bill would withhold taxes for workers who may be illegal immigrants.

Sen. David Hoyle, a Gaston County Democrat, said he filed the bill after hearing from the N.C. Department of Revenue that some contractors don't pay income tax.

Under the current system, contractors who have Individual Taxpayer Identification Numbers, or ITINs, instead of Social Security numbers can avoid having state income tax taken out of their paychecks.

But Hoyle said the state has no way to find those workers later on if they don't end up paying, since federal law prohibits the Internal Revenue Service from sharing information on ITINs to other government agencies.

"You can't get an address. You can't track them down. You can't audit them." he said. "Osama bin Laden could get an ITIN number and nobody would ever check him."

He said the Department of Revenue is losing "hundreds of millions of dollars" from unpaid taxes.

"Everybody should have to pay their taxes," he said. 

Gov. Beverly Perdue says drinking and smoking are voluntary.

At a presentation on her proposed budget this morning, Perdue said she decided to include increases in taxes on tobacco and alcohol in order to avoid more broad-based taxes.

"I just one night, thinking about it all, made the decision... that I was not going to do anything that further diminished the income of a citizen in North Carolina," she said.

But she said products such as cigarettes and beer are "discretionary."

"Those of us who choose to use those two products can afford to suck up," she said.

She said she would be "very reluctant" to increase corporate, personal income or sales tax right now, though she respects the power of the legislature "to do what they may."

"I would believe they're hearing the same conversations I'm hearing," she said.

A bill would let you deduct income lost while on jury duty.

Sen. Jerry Tillman, a Randolph County Republican, said he filed the bill after he heard from a constituent who lost thousands of dollars while on a federal grand jury.

"They were paying him $40 a day," Tillman said. "That will barely cover his travel and his food, and he would lose several hundred dollars a day by not being able to run his business." 

Under Tillman's proposal, North Carolinians who serve on state or federal juries, whether it's for a Superior Court trial or a grand jury, would be allowed to deduct the lost income from their state taxes.

Tillman, a retired school principal, said he wasn't sure it would affect him directly, since defense attorneys typically try to get him tossed out of the jury pool.

"Sometimes you go down there and sit for three or four days while they haggle," he said. 

Sen. Pete Brunstetter
Winston-Salem Republican
Second Term

What two things would you cut in the state budget? "I'm not a big fan of the More at Four program," Brunstetter said. "I don't think it has had the impact that justifies the cost."

He added that there needs to be some consideration of merging More at Four with Smart Start, another pre-school program.

Are there any taxes you would be in favor of increasing? He said he would favor a reduction in the state income tax, to recruit more industry. It could also bring in more revenue, because some companies are reporting income in other states rather in North Carolina.

— Rob Christensen 

North Carolina could fall short of projected revenue by 10 percent.

According to a presentation on the budget outlook prepared by the legislature's Fiscal Research Division, the state could fall short of its expecations by approximately $2 billion.

Through December, tax collections were down 6.6 percent.

Particularly hard hit by the recession are three taxes that make up 86 percent of general fund revenues: the personal income tax, the sales and use tax and the corporate income tax. All three are directly tied to the economy.

But state budget officers won't know exactly how bad the recession has hurt tax collections until after April 15, when corporate and personal income taxes are paid for the year.

The presentation says it is "highly probable" that the state's tax collections won't return to the projected amounts until the 2010-11 budget year.

The National Republican Senatorial Committee has released a new TV ad attacking Democratic Senate candidate Kay Hagan's record on taxes.

What the ad says: A narrator with a British accent reads a Dr. Seuss-ish rhyme as cartoons of Hagan are shown. "One tax, two tax, three tax, four. Vote for Kay Hagan if you want to pay more. Ten years in office and she's raised tax high. Income tax, sales tax, Coke tax ... Oh my. Doubling state debt? Hagan's foot on the pedal. Taxing working families? She gets a gold medal. The National Republican Senatorial Committee is responsible for the content of this ad. High taxes and spending. Hagan's record's real sad."

The background: The ad makes several claims about taxes and debt.

INCOME AND SALES TAXES: Facing a budget shortfall in 2001, the legislature increased the state sales tax by a half penny and the income tax on households making more than $200,000 a year by a half percent.

The taxes were billed as temporary fixes and were set to expire in two years.

In 2003, Hagan became a cochairwoman of the Senate Appropriations committee, which helps write the annual budget. That year, the legislature extended the temporary taxes two more years.

The taxes were extended again in 2005, but in 2006 the legislature phased out half of each tax increase. In 2007, the legislature phased out the remainder of the income tax hike and made the quarter-cent sales tax increase permanent.

Hagan voted for the temporary taxes, both extensions, the phase outs and the move to make half of the sales tax hike permanent. As a budget writer in 2005 and 2007, she pushed to reduce or end the temporary taxes, but she supported the final versions of the budget, which did not.

COKE TAX: In the late 1990s, a multi-state effort was started to make the sales tax more uniform in the hopes of getting online and catalog retailers to charge it.

At the time, North Carolina treated candy and soda differently based on where they were sold.

If you bought a bag of M&Ms at the 7-Eleven to eat immediately, you paid state and local sales tax since it was basically considered junk food. If you bought a larger bag to portion out in your kid's lunchbox, you only paid a local sales tax, since it was considered a grocery item.

To streamline the tax, legislators had to choose whether to charge the state sales tax on all candy and soda, or leave it all at the local rate.

The final 2003 budget included a higher tax rate on soda. At the request of the soft drink industry, it also included a separate provision that dropped the tax rate by half on cans and bottles sold through vending machines.

The streamlined sales tax, which included soda, prepared food and modified software, was estimated to bring in an extra $44.1 million in revenue, while the vending machine loophole was projected to cost the state $4.1 million.

STATE DEBT: The state constitution requires the legislature to balance the budget, so North Carolina's debt does not come from annual budget deficits.

Instead, the debt comes from bonds issued by the state to pave highways, build jails and college buildings and pay for other projects. The bonds are backed by the state's expected tax revenue.

During the five years Hagan was a budget writer, the state's overall debt went from $3.5 billion to $6.9 billion — nearly doubling.

However, the increased debt has not hurt North Carolina's credit rating. The three agencies that rate government bonds — Moody's, Fitch and Standard & Poor's — each give it a top-tier ranking.

North Carolina is one of only seven states to have top rankings from all three.

Is it accurate? Yes. Hagan voted for the temporary taxes, although she also voted to end or reduce them. She voted to raise the tax rate on soft drinks and cut a separate tax slightly. State debt doubled when she was a budget writer.

Kay Hagan voted on the temporary taxes several times.

The Democratic Senate candidate has been attacked in two recent ads for her support of two tax increases pushed by Gov. Mike Easley in 2001 and not ended until 2007.

Here is a quick summary of the votes she cast:

2001: To increase sales tax by a half cent and income tax on households making more than $200,000 by a half of a percent for two years. Hagan voted yes.

2003: To extend the temporary taxes until 2005. Hagan voted yes.

2005: To extend the temporary taxes until 2007. Hagan voted yes.

2006: To phase out half of the temporary taxes. Hagan voted yes.

2007: To phase out the remainder of the income tax hike and make the quarter-cent sales tax increase permanent. Hagan voted yes.

Hagan was a cochairwoman of the Senate Appropriations committee from 2003 to 2007.

As noted previously, she unsuccessfully tried to end the taxes entirely as a Senate budget writer in 2007, though she ended up voting for the final budget.