2005 General Assembly
Various circumstances, issues and trends affected the climate of the 2005 legislative session:
Most of Gov. Fletcher’s tax modernization proposal (JOBS – Jobs, Opportunities, Bi-Partisan, Solution) was adopted by the 2005 legislature.
Taxes were increased on cigarettes, alcohol package sales and satellite, telephone and cable television. Some corporate tax loopholes were closed, particularly with regard to limited liability corporations. The state corporate license tax was exchanged for an alternative minimum tax.
Tax modernization included significant cuts in corporate tax rates and personal income taxes, eliminating income taxes for individuals and families in poverty and lowering income taxes for everyone else. (Fletcher proposed a “trigger” to automatically continue income tax reductions over time, but it was removed by the legislature.)
Tax modernization is expected to produce a one year revenue increase of $110 million in fiscal year 2006. Over five years, however, the $707 million in new revenue it is projected to generate will be offset by $710 million in revenue reductions.
Despite tax modernization, administrative efficiencies, and overall improved economic conditions, state government faces immense financial challenges.
The Fox Report, commissioned by the state legislature, projected that state government would need to raise $2.3 billion by 2010 to maintain existing services. This was attributed to an outdated tax system. However, the restructured tax system adopted by the 2005 legislature is revenue neutral, meaning it won’t raise more money for the state.
Why is state government under such financial pressure? Analysts point to the following: