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.
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