How much did the temporary sales tax raise?

Facing a budget shortfall in 2001, the legislature increased the sales tax by a half-cent. The taxes were extended in 2003 and 2005, then cut in half in 2006. In 2007, the remaining quarter-cent increase was made permanent.

The N.C. Department of Revenue recently calculated the total amount of money raised by the temporary sales tax hike in each budget year:

2001-02: $413 million
2002-03: $441 million
2003-04: $480 million
2004-05: $507 million
2005-06: $552 million
2006-07: $391 million

In total, the temporary sales tax hike raised about $2.8 billion over the last six years.

Previously: Democratic Senate candidate Kay Hagan under fire for temporary taxes.

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.

Kay Hagan tried to end the temporary taxes in 2007.

Two recent ads have attacked the Democratic Senate candidate over her votes for temporary taxes instituted in the 2001 budget and later extended, so Dome is taking a closer look at her record.

As a budget writer in 2007, Hagan pushed to let both taxes expire, according to an Associated Press article on May 30 of that year:

In what's likely to be a sticking point in final budget negotiations with the House and Gov. Mike Easley for the new fiscal year starting July 1, the Senate plan lets expire two "temporary" taxes first agreed to in 2001, but extended twice since. A portion was removed last year.

The House's two-year budget approved earlier this month keeps a quarter-penny on the sales tax and a higher income tax bracket for the state's top wage-earners for another two years. Those moves add about $300 million to the government coffers next year to pay for education and health care needs. Easley's budget proposal also retained the taxes.

"We want those to sunset," said Sen. Kay Hagan, D-Guilford, one of the Senate's chief budget-writers.

On June 4, the Greensboro News & Record quoted Hagan on the taxes: "It's time for them to go."

The final budget negotiated by House and Senate leaders and the governor allowed the temporary tax on higher income earners to expire at the end of the year, but made half of the sales tax increase permanent.

Hagan voted for the final budget.

Kay Hagan is under fire for the temporary taxes.

Two new ads by the National Republican Senatorial Committee and Americans for Prosperity attack the Democratic Senate candidate for her vote for the 2001 budget.

That year, the state faced a revenue shortfall because of the poor economy. To make up the losses, Gov. Mike Easley proposed two temporary tax hikes that August.

Under the final plan approved by the legislature, the sales tax rose by a half cent and the income tax on the wealthy — single taxpayers making more than $120,000 or married couples making more than $200,000 — went up a half of a percent.

The taxes were supposed to sunset in 2003 and 2005, but lawmakers extended them, eventually phasing out all but a quarter-cent in sales tax increases in 2007.

Hagan served as a budget writer from 2003 to 2007.

Americans for Prosperity is running a radio ad against Kay Hagan.

The limited-government advocay group will spend $150,000 on an ad to air statewide with a concentration on the Triangle, the Triad and Wilmington.

The minute-long ad argues that Hagan, a state senator running for the U.S. Senate, has opposed "environmentally friendly offshore oil drilling" and supported temporary tax hikes.

"You know that feeling you get when you fill your tank and your jaw drops when you see the costs?" the ad says. "Thank Kay Hagan if those eye-popping gas prices continue for years."

Earlier in the summer, Hagan opposed offshore drilling in general, but she later said she would support a bipartisan bill that would leave the issue up to the states.

Americans for Prosperity spokesman Dallas Woodhouse said that the ad is about oil drilling off the North Carolina coast, although it is not clear in the script.

"She's not willing to simply endorse a clear, unconditional move to explore for energy off the coast of North Carolina," he said. "She's all over the map when she says things, but the bottom line is she will not commit to unconditional support."

In August, the group ran a radio ad praising U.S. Sen. Elizabeth Dole's approach to oil issues.

After the jump, the script.

   Comments (0)

What taxes were in the 2003 budget?

The first budget partially negotiated by state Sen. Kay Hagan included $14.8 billion in spending, a $400 million increase from the previous year.

The budget will likely come up again in the U.S. Senate race, with Republican Sen. Elizabeth Dole signaling that she will attack Hagan's record.

Here's a few details from the budget that she may focus on:

Temporarily Continued: The budget continued the "temporary taxes" on sales and the wealthy first instituted during a 2001 shortfall and set to expire in 2003. The two taxes were expected to generate about $384 million.

Sin No More: Senate leaders proposed adding 25 cents in tax to a pack of cigarettes and 5 cents to a can of beer, but House leaders shot the idea down. The taxes would have raised $326 million to offset proposed education cuts.

Higher (Cost) Education: Tuition at state universities went up 5 percent, though the budget added $5.1 million in need-based financial aid. In-state community college tuition rose 3.2 percent. For out-of-state students, it was 8.2 percent.

Obviously, there's a lot more to the budget than these three items, but they're the ones easiest to explain to voters in a short attack ad.

John Edwards can't even catch a break in North Carolina, the state he used to represent in the Senate.

The latest tracking poll by Public Policy Polling shows that Edwards is third among North Carolina Democratic voters in the presidential race, although the numbers actual fall within the margin of error. Here are the numbers from the Jan. 9 tracking poll:

Hillary Clinton - 31 percent

Barack Obama - 29 percent

John Edwards - 27 percent

The survey of 986 likely Democratic primary voters has a margin of error of plus or minus 3.1 percent.

Sen. Fred Smith said the state budget is "non-sustainable."

The Clayton Republican, who is running for the Republican nomination for governor, told Dome that he supported the Senate's proposal because spending did not increase as much and it would have ended two temporary taxes.

But he said the final version of the budget had too much spending and not enough tax cutting.

"When they found out they had more money, they spent every dollar of it," he said. "That is clearly not sustainable for our state."

He said the Earned Income Tax Credit is "nothing but a welfare program." He said reducing the sales tax rate would have done more to help the poor.

Earlier: Bill Graham calls the budget "irresponsible;" Bob Orr calls it "smoke and mirrors;" Richard Moore likes budget, but not debt; Beverly Perdue praises its new tax credit; 

The state Senate tentatively approved a stopgap spending bill today.

The 29-18 vote to keep the government running for another month at the same spending and tax levels was along party lines. Senators, by the same margin, turned away an amendment by Senate Republican Leader Phil Berger to try to drop two temporary taxes that have been on the books since 2001, Dan Kane reports.

One of those taxes, a quarter-penny sales tax increase, is scheduled to expire on Sunday. The other, a quarter-percentage point income tax increase on high earners, expires at the end of the year. The Senate's budget proposal had called for both to expire as scheduled, but House Democrats and Gov. Mike Easley want to extend them another two years.

Senate Majority Leader Tony Rand, a Fayetteville Democrat, successfully urged his colleagues to keep the taxes in play for another month while Senate and House leaders and Easley try to resolve budget differences and agree upon a plan for the state to take over the counties' Medicaid bills. Rand said the $260 million the sales tax provides annually could play a key role in helping solve the Medicaid problem.

The Senate plans to meet again after midnight to give the stopgap spending bill a second vote. It has already cleared the House. Easley would need to sign it before midnight Saturday.