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:

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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.

Gas Tax and Politics

In the General Assembly, there’re a lot of confusing charges being hurled back and forth about the ‘Gas Tax.’ Let’s try to sort it out.

Let’s start with two facts everyone seems to agree on: First, both Democrats and Republicans agree there are roads we need to build and roads and bridges we need to repair. Second, both sides agree we don’t have the money needed to pay the bills.

The seven-mile, congested bottleneck on Highway 16 between Newton and Lincoln County (in my district) is an example – that bottleneck won’t go away until we can widen the highway. But that costs $148 million.

Right now, under our current system the gas tax is 37.5 cents per gallon. Since the tax goes up and down based on the cost of a gallon of gas, it is projected to drop to around 30 cents in July.

The Senate has just proposed an alternative: It proposes to drop the tax 2.5 cents per gallon now then ‘freeze’ the tax. In other words, the gas tax won’t drop below 35 cents per gallon.

Most of the hollering going on in Raleigh revolves around a single question: Is that a tax cut or tax increase?

It’s true that under the current system the tax would have dropped 7.5 cents, so if you look at just that piece the drop to 2.5 cents is a tax increase.

It’s equally true that the tax is now 37.5 cents and it’s going down 2.5 cents – and while that may not be a 7.5 cents cut, it’s still a cut.

This may be one of those times when the answer is in the eye of the beholder.

But here’s the bottom line: Both sides agree we need more roads and even the Democrats – who are calling this is a Republican tax increase – aren’t saying we should go ahead and cut the gas tax to 30 cents per gallon.

After I was elected to the General Assembly, I started commuting back and forth from Hickory to Raleigh and it didn’t take long to figure driving a gas burning SUV was going to get expensive. So, I decided to drive a car that ran on diesel and cut my fuel cost – and the gas taxes I pay – by nearly half.
It turns out a lot of other NC drivers were making a similar choice. They were switching to automobiles that used less gasoline. That change, combined with the drop in the cost of gas, led to an unexpected development: Gas tax revenues – which we use to build highways – plummeted. Our old way of paying for our highways was no longer working. It had been outdated by a new reality.

Of course, gas taxes are about as popular as a toothache. But there’s no getting around the fact we have a problem. Or the fact we can’t get along without highways.

People can argue over whether a 2.5 cents cut (rather than a 7.5 cents cut) is a tax increase. But the real question remains: Do we need to build more roads – or not? Both the Republicans and the Democrats, including the Democratic leaders in the General Assembly, all agree the answer is we do.

Medicaid and Opioids

North Carolina’s proponents of big government ought to stop and take a deep breath before continuing to push to expand Medicaid – because even the New York Times is raising caution flags.

The Times reported, last Thursday, that President Obama’s Center for Disease Control and Prevention has released a study reporting “an average of 39 percent” of the women of childbearing years on Medicaid filled an opioid prescription in a pharmacy each year from 2008 to 2012”.

Medicaid spends billions on prescription drugs but this goes far beyond a question of cost: “Dr. Thomas R. Frieden, director of the C.D.C., described the numbers as ‘astonishing’ and said they presented a substantial risk for birth defects.”

The article continued: “Exposure to opioid painkillers increases the risks for major defects in the baby’s brain and spine, congenital heart defects and problems with the baby’s abdominal wall.”

And this problem isn’t just affecting the unborn, “Opioids are the single largest cause of overdose fatalities in the nation, with more than 16,000 deaths a year.” The most affected group in the survey is white Southerners.

“These are dangerous drugs that are addictive, and we are substantially overusing them,” Dr. Frieden said.

Now that’s a breathtaking example of broken politics: A government program set up to help poor children and pregnant mothers is actually harming both – while in Raleigh the push is on to expand the program.

Have We Really Peaked?

The headline in the Washington Post was a little unsettling: Most Americans’ best days are behind them.

Below the headline was a map showing the counties in the nation with the year their median household income (adjusted for inflation) reached its zenith.  The majority of NC counties, like the South, peaked in 1999.

I’ve watched that happen first-hand, right here in Hickory and the Catawba Valley. But it was surprising to see communities we thought were booming – like Raleigh and Charlotte- in the same predicament.

The source being the Washington Post, I confess I felt a bit of skepticism- so I asked the legislative staff to verify. They came back and reported, yes, in 2010, the Wake County (Raleigh) inflation-adjusted median household income was 8% below where it was in 2000. In Mecklenburg County (Charlotte) the drop was even greater: 14%.

While the General Assembly debates spending more taxpayer money for business incentives or expanding Medicaid or taking on debt for road projects, a couple of questions come to mind. Should the state continue taking more money from people that have less?

I’ve learned the hard way that “more” is not much of a goal in any endeavor- including both business and government. And I suspect that may be the lesson before us now.  In most things, you reach a point where you have enough. It’s not just a matter of a reduction in the benefits associated with incremental growth.  In fact, there is a point where “more” actually turns what was a positive experience into something negative (like 2 wives or 12 beers).

Secondly, I wonder about the theory of some historians that human society moves through cycles or seasons and that every 80 years or so we find ourselves in something similar to a “winter” season – when it’s not the right time to either plant or harvest. Winter is not a time for action, it’s a time to rest and think and husband resources and, with the approach of spring, be ready- to take action and grow- like our country did in the boom after World War II.

Just to be clear, I don’t buy the Post headline that the good times are over and it’s all downhill from here.  But also, I do not buy the line that we are on the right track and just a little tweaking will fix whatever ails us. Perhaps, unintentionally, the Post was telling us it is time to pause and to size our appetites (and size our government) to our earnings. We can’t be certain cutting government regulations and taxes will turn around what happened to our family incomes during the last decade-  but we can be certain forcing families who are earning less to pay more is just plain wrong.