Earned Income Tax Credit

The howls started immediately when, last year, to reform the tax code and create jobs the General Assembly dropped the state’s version of the so-called earned income tax credit.

 

It became, pretty quickly, a media circus.

 

Rev. William Barber waded in, suggesting he – by virtuously standing up for the E.I.T.C. – was the epitome of rectitude while those who didn’t agree with him had no empathy for the poor.

 

It was politics run amuck.

 

So what exactly is the E.I.T.C.?

 

Well, first it’s not a tax credit at all. Instead, it works like this: Let’s say, hypothetically, a low income person pays $500 in Social Security and other taxes. At the end of the year, they can file for an E.I.T.C. tax credit and receive a ‘refund’ of, say, $2,000. In effect, they receive a ‘refund’ $1,500 greater than the taxes they paid.

 

And that’s what the General Assembly ended last year: North Carolina’s local version of Washington’s E.I.T.C.

 

Now, last week, one of the publications that showcased Rev. Barber’s attacks on conservatives – like me – reported the federal E.I.T.C. is a poster program not just for welfare boondoggles but outright fraud. According to the Government Accountability Office, 24% of all E.I.T.C. refunds ($14.5 billion) were ‘overpayments’ that should never have been made.

 

How, you might ask, could that happen? The Commissioner of the IRS explained the “improper payments” were caused by parents lying about their number of children or their incomes – and the IRS mailing the checks before bothering to check the claims.

 

To put that into perspective, $14.5 billion would pay for North Carolina’s entire General Fund budget for eight months.

 

It never made sense to disguise a welfare payment as a tax credit. It was pure political hoo-doo. North Carolina took a step in the right direction when it ended the E.I.T.C. And Washington could save $14.5 bi8llion in waste by doing the same thing.

Coal Ash Management

My wife and I raised three sons who still live in the Carolinas, so, naturally, how to dispose of 100 million tons of coal ash got our attention.

 

I also guess, by now, we all know the biggest coal ash deposit in the state is right here in Catawba County. While that pond is downstream from our local water intakes, a spill – like the spill on the Dan River – could cause harm along the Catawba-Wateree basin from Charlotte to Charleston.

 

When it comes to cleaning up coal ash, one problem is folks can’t agree on what to do. One group says – with absolute conviction – we ought to drain every pond, haul away the ash, burn it and then close the ponds.

 

Since that may cost $10 billion, other folks argue it’s better to close the major threats immediately, then determine if there’s an effective but less costly way to clean up the others.

 

There’s another question hardly anyone’s asked: Coal ash ponds have been regulated by state experts for decades. So how did we land in this mess? What went wrong?

 

There’s no way to put this but bluntly: But when it comes to cleaning up the coal ash ponds having the same old team of regulators in the room isn’t enough – we need some new faces.

 

And that’s starting to happen. The legislature has put new people – who have no historical ownership of the problem that may blind them to a better solution – to work. It also helps the new team includes a number of people who have the engineering backgrounds, as well as a former national President of the Sierra Club with a 30 year history of environmental leadership.

 

Of course, we can’t expect to correct 80 years of mistakes in six months.

 

When our sons took their first steps across the room, we didn’t critique the wobble in their stride or measure the length of their steps and point out how they could cover more ground with a few tweaks. The bill dealing with coal ash is like that – it’s the first few steps.

 

North Carolina Education Revenues Chart

The chart below with an interesting perspective on education funding that crossed my desk this week from the NC Department of Public Instruction. Click on the chart for a closer look.

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General Assembly Required Tests

A lot’s been said and written about testing students (grades K – 12). Here’s a list of tests – many required by the federal government, and others by the State’s Read to Achieve program.

 

G.S. 115C-174.11 provides that the State Board of Education “adopt the tests for grades three through 12 that are required by federal law or as a condition of a federal grant.” The federal No Child Left Behind (Elementary and Secondary Education Act) law requires standardized testing at the end of the school year in reading and in mathematics in grades 3-8, in science in grades 5 and 8, and in English II, Algebra I, and Biology in high school.

 

G.S. 115C-174.11 also requires the administration of the ACT to all 11th graders and, in G.S. 115C-174.22, to the extent that funds are available, of the diagnostic versions of the ACT in 8th and 10th grades.

 

In 2012, the State Board of Education received a waiver from the federal government for the requirement to measure annual yearly progress through No Child Left Behind, if they agreed to reduce the gap between the highest and lowest performing groups of students by a specific percentage each year.  The State Board also had to agree to evaluate teachers, in part, based on student academic achievement. In order to measure all teachers based on student outcomes, the State Board has developed “final exams” in subjects such as social studies that did not have statewide tests. Local school systems can use these final exams, or present an alternative way of measuring teacher performance for approval by the State Board.

 

The Read to Achieve program was passed as a part of the Excellent Public Schools act in the 2012 Budget. Through this program, per G.S. 115C-83.7, students who do not demonstrate reading proficiency on the end-of-grade third grade reading test, must be retained, unless they meet one of the following “good cause exemptions”:

 

(1) Limited English Proficient students with less than two years of instruction in an English as a Second Language program.

(2) Students with disabilities, as defined in G.S. 115C‑106.3 (1), whose individualized education program indicates the use of alternative assessments and reading interventions.

(3) Students who demonstrate reading proficiency appropriate for third grade students on an alternative assessment approved by the State Board of Education. Teachers may administer the alternative assessment following the administration of the State‑approved standardized test of reading comprehension typically given to third grade students at the end of the school year, or after a student’s participation in the local school administrative unit’s summer reading camp.

(4) Students who demonstrate, through a student reading portfolio, reading proficiency appropriate for third grade students. Teachers may submit the student reading portfolio at the end of the school year or after a student’s participation in the local school administrative unit’s summer reading camp. The student reading portfolio and review process shall be established by the State Board of Education.

(5)  Students who have (i) received reading intervention and (ii) previously been retained more than once in kindergarten, first, second, or third grades.

 

The Department of Public Instruction has developed an alternative assessment and a student reading portfolio to address #3 and #4 above. Our understanding is that the State Board will also review other alternative assessments to see if they would meet the law’s requirements, as submitted by local school systems.  We have also heard that DPI has sent out additional clarification that the student reading portfolio was not meant to be administered with all third grade students, but only those who appear to be reading at, or close to, a third grade level, and who may have difficulty taking more traditional standardized tests.

 

Here is what the law says about the student reading portfolio:

 

G.S. 115C-83.3(8) “”Student reading portfolio” means a compilation of independently produced student work selected by the student’s teacher, and signed by the teacher and principal, as an accurate picture of the student’s reading ability. The student reading portfolio shall include an organized collection of evidence of the student’s mastery of the State’s reading standards that are assessed by the State‑approved standardized test of reading comprehension administered to third grade students. For each benchmark, there shall be three examples of student work demonstrating mastery by a grade of seventy percent (70%) or above.”

 

The third grade beginning of the year reading test was administered for the first time during the 2012-2013 school year for several reasons:

  1.  Give third graders an early experience with a standardized test.  NC law (G.S. 115C-174.11(a)) prohibits standardized tests for summative assessment in K-2.
  2. Discover third graders’ reading abilities at the beginning of the year to help inform instruction.
  3. Provide a pre-post measure of the impact of instruction on a third grader’s reading ability.  The Read to Achieve program requires that the summer reading camp, the transitional third-fourth combination class, and the accelerated reading classes be taught by teachers with demonstrated student outcomes in reading proficiency.  This impact data can also be used to help populate Standard 6 of the NC teacher evaluation.  According to the waiver that NC received from the federal government for the No Child Left Behind measures of adequate yearly progress, by 2015-2016, all teacher evaluations have to include a measure of student impact.

 

The end-of-third grade reading test is a standardized test administered to all third graders.  It is a requirement of the federal government through No Child Left Behind (Elementary and Secondary Education Act).

A.A. Shuford plant

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Representative Andy Wells and Stephen Shuford of Shurtape Technologies review the cleanup of the A.A. Shuford plant on Highland Avenue – a project facilitated by Wells’ House Bill 706.

Medicaid – It’s Not Our Job

Medicaid is the biggest, fastest growing program in state government – and the only program with no budget. That’s not to say the department doesn’t crunch numbers and set targets and pretend to have a budget, but the hard fact is the numbers are illusions. When the end of each fiscal year rolls around, with red ink piling up, DHHS lands on legislators’ doorsteps saying, We’re back for our annual bailout.

No one would run a business that way. No one would say to a manager, Here’s your budget but don’t worry if you spend too much – we’ll write you another check.

But that’s happened over and over with DHHS – which may lead to a second mistake: Frustrated legislators may decide to fix DHHS’ bungling by managing Medicaid themselves.

Now, I’ll grant you, that’s a temptation. But a legislator would be better off taking title to a local coal ash pond than taking ownership of Medicaid.

So, what’s the alternative?

How about this: Let’s set a real Medicaid budget that includes a hard cap on spending – then tell DHHS, Don’t even think of coming back at the end of the year for more.

Let’s also give the Governor the power to do whatever it takes to stay under that spending cap, including the authority to cut the number of people receiving Medicaid, to cut programs, and to cut fees to providers. If the Governor wants to set up ACO’s (and offer them incentives and penalties) that’s fine too. But, either way, the bottom line’s the same: Legislators aren’t giving DHHS one penny more.

And while we’re at it, let’s give the Governor and Secretary Wos the power to tackle Medicaid waste and fraud. Right now, if North Carolina slips up and wastes (or gets flim-flammed out of), say, $100 million in Medicaid funds we have to repay roughly $65 million to Washington. In other words, North Carolina has to repay Washington for Washington’s share of the wasted money. Now, in practice, that sounds fair. But in the real world it’s led to one odd consequence: No one at DHHS is on fire to identify Medicaid waste and fraud.

So, let’s give Secretary Wos the green light to negotiate a pilot ‘Fraud Elimination Program’ with Washington. The Secretary could ask the members of our Congressional delegation to sponsor legislation to waive the refund requirement to allow her to cut every penny of waste she can find.

When it comes to fixing Medicaid the cure isn’t the legislature stepping in and doing DHHS’ job – it’s good old-fashioned accountability. For years, legislators have given DHHS billions then, every time they’ve screwed up, we’ve bailed them out. That’s not accountability.

So instead of continuing the bailouts, let’s say: Here’s a budget. Here’s a hard cap. And here’s the power to stay under that cap. Now go do your job. And don’t even dream of coming back for more money.

Two States Chart

I have been talking about NC consisting of two states. The chart below demonstrates a sharp divide among our urban areas with some booming and some flat lining.

Click the image below to view a larger version.

 

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Privilege Taxes

Politics and sleight of hand, all too often, go hand-in-hand.

A hidden tax – like the ‘Privilege Tax’ – is an example.

Here’s how it works: A city makes a retailer (like Wal-Mart) pay a tax of, say, $25,000 for the ‘privilege’ of doing business in the city.  The retailer then plugs the new cost into its computer and adds a small amount to each purchase at the store so it can pay the tax.  So when local citizens pay their bill at the checkout line they see the sales tax added to the bottom of the receipt but the Privilege Tax amount is hidden inside the cost of each purchase. The consumer has no idea he or she just paid a tax to the city.

That’s bad for consumers.  But it’s quite lucrative for the city.  One local municipality receives $1.1 million every year from hidden Privilege Taxes.

That’s why a plan in the NC General Assembly to reform the Privilege Tax is generating a flurry of protests from NC municipalities, including a not-so-subtle threat:  The cities say if the legislators take away their hidden tax, then they will have to increase property taxes.  To hear them describe it, every city government is so lean and mean and there is no spending anywhere to be cut to avoid raising property taxes.

Of course, what they’re really saying is, “We like collecting a million dollars in taxes people don’t see and if you repeal the hidden taxes, then we’ll have to show people the total taxes (they pay on their property tax bills) and we don’t think that’s a good idea.”

One more fact:  there may be someone less interested in raising local property taxes than me, but it’s not likely.  So, I asked a few questions and got a surprise.  It turns out the very same city that imposes a hidden Privilege Tax of $1.1 million annually also has $7.8 million in uncollected property tax bills – going back years.  So here’s how the system works:  One group of people fail to pay $7.8 million in property taxes, then, to make-up for the shortfall, the city puts a hidden tax on everyone else.

How’s that for broken politics?

 

How the War on Poverty Was Lost

Here’s an article written by Robert Rector of Heritage Foundation. Of course, folks will naturally, argue over whether his conclusions are correct. But he presents the facts clearly. And makes a sensible case that simply transferring money from one group of people to another failed, because it didn’t attach to root causes of poverty.

A Little Humility

I would like to answer Rev. T. Anthony Spearman’s commentary in the Hickory Daily Record on February 25, 2014.

Reverend Spearman argues Republicans are, somehow, against the poor and vulnerable and, so, are immoral and at odds with the teachings of the Bible.

Now, political leaders wrapping themselves in the Gospels and claiming those who disagree with them are ‘immoral’ is not a new phenomenon. But, in fact, what Rev. Spearman is doing is arguing his opinions are moral and anyone who disagrees with him is immoral.

But is it ‘immoral’ to believe – as Republicans do – that government is not the answer to every problem? And that more government will not cure poverty? Because that is the heart of Rev. Spearman’s disagreement with Republicans – our belief in less government.

Spearman argues that when Republicans vote for less government, they are voting against the poor. But is that so?

Five decades ago, in 1964, government declared war on poverty. Since then, we’ve spent $20.7 trillion to eliminate poverty. And, fifty years later, the poverty rate has not gone down. President Obama spent a trillion dollars on a big government ‘Stimulus Plan’ to create jobs – and it failed. So is more government really the cure to poverty? Or unemployment?

Rev. Spearman’s answer to that question is Yes, absolutely – then he (and Rev. Barber) go a step further and brand conservatives as immoral or evil.

I’d be the first to admit Republicans are not perfect. But, it’s equally true that Rev. Spearman does not have a monopoly on ‘doing God’s bidding.’ There’s a missing piece in Rev. Spearman’s commentary – a bit of old-fashioned virtue that can make all the difference: Humility.