Separate is not equal in corporate-tax listing.

• Position: ECONOMIC OUTLOOK - Interview

Gov. Mike Easley enters the final two years of his second term with the recent election having tightened the Democrats' grip on the General Assembly. His party's increased majority in both houses should help push his legislative agenda. Among Easley's goals is changing the way corporate income is reported. But Dan Gerlach, the governor's senior policy adviser for fiscal affairs, says the administration may move more slowly on other tax issues.

BNC: Will you try to cut the rate for corporate income tax?

The governor has said that he will do so if we can reduce the rate without jeopardizing the revenue needed to sustain our education investments. When we recruit business and industry, they want a skilled work force, and if we deny ourselves the revenue needed to invest in that, that's going to be a bad deal for our economy, both in the short and long term.

Any changes to the personal income tax?

First, you have to look at what services state government is going to provide and what services local governments are going to provide. After you sort out those responsibilities, which haven't been re-examined for many years, then you can get to the question of how to pay for them at each level of government. The Commission to Modernize State Finances in 2002 recommended a study of state and local relations. That is under way. Members have been appointed.

Who's on this new commission?

It's a mix of business people, members of the General Assembly, members of the public and local-government officials. Ten members are appointed by the speaker of the House, 10 by the president pro tem of the Senate and 10 by the governor. I'm the governor's co-chair.

What's it trying to do?

Look at the whole tax system and what level of government does what. How you divvy up those responsibilities is at issue. For example, in only two states, ours and one other, do the counties pay a share of the program costs for Medicaid. So you have some of our poorer counties, which have more of a caseload, having to pay a share of the cost. But, they're the ones with the least resources to do so. So they complain, 'This is not fair. This is hurting us. The state should do everything.'

Are they right?

The state pays for far more of the K-12 education budget, far more of the court budget and far more of the roads budget than do state governments in other places. We have to look at whether the way that's sorted out still works for us.

What changes might happen this session?

It will be...