Discouraging Jobs and Investment

Last week we saw how a manufacturer – in this case Volvo – announcing it’s going to build its new plant in SC instead of NC ignites editorial writers and creates a firestorm of finger-pointing.

But amid the bloggers’ cries of “why not us” two facts have been ignored.

First, giving Volvo (or any new industry) $200 million in tax breaks means that someone else has to pay for the cost of streets and sewer lines and infrastructure to support their new business.

New development, especially huge new developments like this one, increase what government spends on roads, schools and other public facilities. Politicians who favor incentives will argue that, in the long run, those costs will be offset by future taxes the business pays. But it’s also a fact there will be a short-term deficit that has to be funded by taxpayers.

The second issue is more subtle. And has to do with fairness.

In 2013, so NC could better compete with our neighboring states, the General Assembly reduced personal and corporate income tax rates. But later, after the dust settled, we learned an odd fact: A little known glitch in the state tax code is actually increasing taxes manufacturers pay on job creation and investment in our state.

The glitch is the way we allocate the state taxes for big corporations. And the fix is straightforward: convert our tax system to the ‘single sales factor.’

Right now, NC doesn’t just tax our manufacturers on the products they sell in NC – we also tax them based on the number of workers they employ and how much they invest in plants and equipment. Other states – like SC – don’t have those additional taxes. And if we eliminate them here, we will also eliminate a big reason the state has to hand out cash to get a manufacturer – like Volvo – to build a plant in NC.

Consider this hypothetical example: A manufacturer who has a plant in NC sells its products all over the world.  Under the current law, let’s say the additional taxes it pays – for creating jobs and investments here – are $10 million a year. Going to the single sales factor (and just taxing manufacturers on NC product sales) will give that company 10 million reasons to create jobs in NC.

It’s not a new idea. For years we have allowed banks and utilities to use single sales. Why not allow it for the businesses offering the fastest route for working families to move from poor to middle class?

Single sales is not only smart tax reform – it’s fair. Because instead of helping a select few corporations with special tax breaks or cash incentives, we help every manufacturer, whether they are new to our state or have been here 100 years, do the very thing we need: Hire and invest in NC.

Broken Politics – On The Right

Here’s another way facts get twisted and political debate goes downhill.

A politician, making a speech, says, ‘Solar energy gets a special tax break – an 80% exemption from property tax.’ It sounded innocent enough. It was, technically, correct. But the politician left out part of the story.

Next a blogger, bent on lambasting solar energy companies, took the politician’s half-truth and twisted it again and wrote it was an outrage solar companies only pay property taxes on 20% of the land they use.

And that’s how political debates go downhill: From half-truth. To twisted half-truth. To outright fiction.

Here’re the facts: Solar energy businesses do receive an 80% property tax exemption on the power generation equipment they own. But they receive no exemption at all on land. They pay those property taxes just like everyone else.

But that’s not all of the story.

Here in Catawba County, 35 acre solar facilities have been built on agricultural land. Prior to their being built that land was taxed at a special rate for ‘farmland’ – a special rate that set the value of the land (which determines how much tax is paid) at $300/acre.

Installing a solar facility did two things: It took the land out of the special farmland category, thereby raising the land value for tax purposes back to current land values of approximately $3000/acre.

And it changed the land use to an industrial use which pushed the land’s tax value up even more – to $10,000/acre.

In other words, the county’s tax base increased from $300 to $10,000 per acre. On 35 acres that’s an increase from $10,500 to $350,000.

Next the Solar Center adds $20 million in equipment and, after it claims the 80% exemption, ends up paying taxes on $4 million in equipment.

Which means that tax value of the 35 acre site increases again – going from $10,500 to $350,000 to $4,350,000. A 400 fold increase. Which means the property taxes the county collects on the site go up 400 fold as well.

When all is said and done the solar company has converted a 35 acre vacant field with no water and sewer service into a business that adds $4.35 million to the Catawba County tax base. And without having to build schools and police domestic disputes.

But, then, a blogger writes it’s an outrage solar companies don’t pay property taxes on land.

That’s an example of how politics becomes broken.

Broken Politics – On the Left

Here’s one reason people are disgusted with politics.

Earlier this year, I introduced a bill in the Senate that said two things: Teachers should not engage in partisan political activity – like supporting a political candidate – during official working hours, and should not use school equipment or supplies for partisan political activity.

That didn’t seem controversial but the NCAE union opposes my bill.

After the bill passed the Senate, the union went to work to defeat it in the State House, telling teachers “there are still many serious questions that remain unanswered about how this legislation will impact educators.”

Next, a local union president took that half-truth and told teachers, “This bill doesn’t just prohibit campaigning during school hours or with school equipment, it seems to also prohibit political activity in general…”

Now, in fact, in plain English my bill states that teachers have a right to support any political candidate they want on their own time, and prohibits supervisors interfering with that right.

And that’s an example of how politics falls apart.

A special interest lobbyist twists the truth. Then one of their union leaders twists it a bit more. And, before you know it, what’s being said is the direct opposite of the truth.

The Big Business of Non-Profits

Here’s a simple fact: When the legislature eliminates a tax loophole for a special interest it can lower taxes on everyone else.

Here’s one more fact: When the legislature tries to eliminate a loophole, the special interest hollers – and hollers loudly.

There’s not a great deal of difference, in the real world, between a multi-million dollar for-profit hospital and a multi-million dollar ‘not-for-profit’ hospital.

Carolinas HealthCare System is an example. It’s one of North Carolina’s largest hospitals. And it’s a ‘non-profit.’ But it operates very much like a for profit business. It pays its CEO $5 million a year – just like large for-profit businesses pay their executives. It has multiple executives who earn over $1 million a year. And it even has a fleet of corporate jets and airplanes.

Big ‘non-profit businesses’ like Carolinas HealthCare System actually have little in common with traditional charities like the YMCA, Boy Scouts or a local church. But under our tax code they are treated the same. For instance, just like traditional charities they do not pay sales taxes (a tax exemption that dates back to a much earlier time when a local hospital was just that – local).

Senate Bill 700 addresses the reality that major ‘non-profit hospitals’ are actually no different from multi-million dollar businesses and that, like other businesses, they should pay sales taxes.

Before I go any further I should make one other fact clear: As a former President of the Boy Scout Council, and chair of the YMCA and a Board of Deacons, I have seen what traditional charitable organizations mean to our communities. This bill doesn’t affect the typical local Boy Scouts or YMCA – in fact, no charity that purchases less than $1.4 million in goods will pay one penny in sales taxes. None.

Instead, the goal of Senate Bill 700 is to close a tax loophole that allows big ‘non-profit businesses’ to avoid paying sales taxes – and to use that revenue to cut taxes on everyone else by $225 million. That means we could increase the standard deduction for a married couple by $2,000, so they would pay no taxes on their first $17,000 (up from $15,000) of income.

The bottom line is simple: What makes more sense? To give multi-million dollar ‘non-profit corporations’ a tax break so they pay no sales taxes? Or to close the loophole and lower taxes on working families?

What’s Right?

Amidst all the posturing in the debate in Raleigh over how to divide sales taxes between counties, I keep hoping to hear the answer to one question:  What’s the right thing to do?

 

Here’s how our current ‘sales tax distribution system’ works: Let’s say a customer pays $10 in sales taxes. All $10 goes to the state, which keeps $6.90. Of the remaining $3.10, $2.33 goes back to the county where the sale occurred, and the other 78 cents is divided among all counties based on their population.

 

The General Assembly is debating how to change the way the $3.10 – that is divided between NC’s 100 counties – is allocated.

 

The problem is simple: When we allocate 75% of the $3.10 by point of sale, it favors urban centers like Charlotte and Raleigh. They get a lion’s share of the money. And, over time, that’s left other counties between a financial rock and a hard-place. When their residents drive to, say, Raleigh to shop, local dollars not only leave their economy, the sales taxes they pay in Raleigh stay in Wake County – instead of returning to their home county.

 

That has left many counties struggling, needing money for schools, with little choice but to raise property taxes. In many counties, property taxes have now hit the roof – which has left them struggling to compete with their more fortunate, urban neighbors.

 

That’s why the General Assembly is debating how to change the ‘sales tax distribution’ formula.

 

The battle lines were quickly drawn.

 

Of course, large urban counties who will lose funding don’t like the new plan – they argue shopping malls cost them money for infrastructure so they deserve more of the sales tax money. There’s some truth in that. But it’s also true the formula heavily favors urban counties.

 

Folks on the other side argue the system is unfair and broken and no money – at all – should be allocated based on point of sale. Every penny their residents pay in sales taxes should be returned to their counties.

 

The fact is the current formula for distributing sales tax distribution isn’t fair. But it is also a fact that there are some costs associated with being a regional shopping destination. Those two facts have to be weighed and balanced. And that’s what’s missing in this debate.

 

Swinging the pendulum too far one way or the other will simply create more unfairness. There is usually a point between too little and too much. We need to find it.

Three Pinocchio’s

Now and then something happens, or someone says something, that just leaves you shaking your head.

 

Last Thursday, in an editorial the News and Observer wrote the Republicans in the General Assembly had raised taxes on 80% of NC taxpayers: “Taxpayers making under ($67,000), which is around 80 percent of taxpayers in North Carolina, will, on average, see their taxes increase under the tax plan.”

 

Then, in the next paragraph, the editorial stated, “And while most people are paying more, Republican tax changes will cost the state more than $5 billion over the first five years as the tax burden is reduced for the top 20 percent of taxpayers.”

 

That left me scratching my head.

 

Republicans had cut taxes $5 billion but raised taxes on 80% of the people.

 

I guess – like alchemy – it is theoretically possible.

 

But after surviving a regimen of calculus and differential equations at N.C. State, I couldn’t see how, practically, it could ever happen.

 

How could Republicans cut sales taxes on everyone, cut income taxes, cut corporate taxes, close tax loopholes and cut taxes a total of $5 billion – and, somehow, at the same time, raise taxes on 80% of the people?

 

Well, I went to digging and found out politics was the root of the problem.

 

The News and Observer’s editors had repeated a charge made by Harry Reid’s Super-PAC against Thom Tillis last year in the Senate race.

 

Back then, when the Washington Post fact-checked Reid’s ad, it wrote, “On its face, it is pretty absurd to think that a tax reform bill that cut rates and eliminated loopholes ended up raising taxes on 80% of the people in the state.”

 

The Post gave Reid’s ad “Three Pinocchio’s.”

 

Factcheck.org agreed with the Post, reporting Reid’s claim “that Tillis ‘passed a whopping tax increase that hit 80% of North Carolinians’ – is wrong.”

And WRAL-TV News reported, “At the end of the day, the 80% claim is simply not right. We give this ad, and any other that repeats this claim, a red light.”

 

This time it’s the News and Observer’s editorial that gets the Three Pinocchio’s.

 

Crisis in NC

It’s a time honored political tradition: When you’re losing an argument on logic, crank up the volume – because, sometimes, he who hollers loudest wins.

 

That theory came to mind when I read a member of the Governor’s cabinet claiming the end of the state tax credits for historic renovation was a “crisis.”

 

I can see the Islamic State beheading innocent hostages, or kidnapping a school full of girls so they could be sold into slavery, or a Category 4 hurricane hitting the NC coast as a crisis. But to call the demise of a tax loophole a crisis seems a bit of a stretch.

 

Let’s take a step back and look at this logically.

 

The Republican legislature eliminated this loophole in order to cut taxes across the board to create jobs. Do we want to head back down the old road to millions in loopholes for special interests and higher taxes for all businesses?

 

No.

 

The logic is simple: We’ll create more jobs by reducing loopholes for special interests and, instead, cutting tax rates for everyone.

Ticket to the Zoo

I sat there wondering: What if these folks took a breath and focused more on doing what’s right and less on scoring political points?

 

The Senate was debating Senate Bill 2 – the legislation that would allow magistrates to choose not to perform any marriage ceremonies, if performing gay marriage ceremonies conflicted with their religious beliefs.

 

Joining in was tempting. But the debate quickly turned into an exercise in posturing – rather than a serious discussion.

 

For example, Democratic Senator Josh Stein said that it is the duty of magistrates to perform gay marriages just like selling tickets to the zoo (to a gay couple) is the duty of other state employees.

 

The problem with Senator Stein’s logic is obvious: There’s a big difference between performing a marriage ceremony and selling a ticket to the zoo.

 

And it says a lot that Senator Stein doesn’t see the difference.

 

Under Senate Bill 2, a gay couple may still go to all 100 county courthouses and receive a marriage license and have their marriage performed. All they cannot do is require a specific magistrate, who objects on religious grounds, to perform the ceremony.

 

Democratic legislators like to talk about respecting different points of view and respecting everyone’s rights equally.

 

But in this case they want to tramp all over the fellow who has a different point of view – the magistrate – by forcing him to do something he believes is morally wrong.

More Debt?

Those that have historically been the best in the world at making money, the big banks, have cut their debt in the last 7 years by 24%.

The average household, having learned the lesson during the 2008 crash as did their grandparents in the great depression, have reduced debt by 18%.

And other corporations are paying off loans as well.

Not only is all that more than offset by governmental debt going up a whopping 35%, some politicians are telling us the answer to our prayers is simple – just let them borrow more money.

 

Click on the chart for a better look:

image1

Too Much to Ask

I was driving home after a recent Senate debate on changes to the state’s unemployment insurance program and marveling at how two people – or two groups of people – looking at the same problem can reach completely different solutions.

The bill was largely a technical one dealing with how to best use taxpayer dollars to help citizens that, after being productive workers, had lost their job and needed a hand to help them transition back into the workforce.

There was a provision requiring that, to continue receiving that cash from the taxpayers, the person had to, in some fashion, reach out to a potential employer to see if a job was available. That requirement was increased from twice a week to five times in a week.

Not everyone thought that was a good idea.

“I think it is overly burdensome. You are kicking people while they are down,” said one Senator.

 

I watched closely, to see if there was the slightest hint that this was just another attempt to score political points, by accusing the opposition of being insensitive, or even evil.

But that wasn’t it. It was the latest sign of two different philosophies – the heartfelt belief that requiring someone to seek a job one time in an 8-hour workday is just too much to ask, on one side, and the belief that’s a reasonable request on the other.

That pretty well frames our public debate. Some folks say we are not doing enough to help the poor. Others argue the poor need to do more to help themselves. And, of course, underlying both questions is a third question: How much should we ask those who are working to give up from their labors to help those who are not.

Jesus said, “The poor you will always have with you”. And the context of that statement suggests there are limits. Here we are, 2000 years later, and we still can’t figure out where to draw the line.

I wonder if, and how, we will ever bridge that divide.