Is That Conservative?

I stirred up a bit of controversy with my article about the proposal to require a farmer to have the government’s permission to lease his land to a solar farm.

One fellow wrote me that he agreed the idea didn’t sound like something government needed to do. But then he added what government really should do is pass regulations telling the farmers what the leases ought to say – for example, how to dispose of solar cells.

So now, instead of a permit, we have government dictating leases to farmers?

Is that conservative?

Why shouldn’t the farmer have the freedom to handle his own business dealings?

It’s a fact I have yet to meet a government employee I would recommend a property owner use for real estate advice.

Freedom Fighters

It’s an old story that repeats itself throughout history – a flamboyant leader exhorts a suffering people to join his crusade to overthrow a ruthless dictator and win their freedom. But then, as soon as the revolution is over, it turns out the new leader is not what he seemed. He wanted power for himself, not freedom for the people.

For years conservatives, standing for two fundamental principles, have battled tax incentives that favor one business over others. We have argued those incentives are examples of government interfering with the free market and ‘picking winners and losers.’

Along the way, additional political leaders (and their allied political groups) joined in, using almost precisely the same arguments while specifically criticizing the state incentives for solar energy.

For a while, it sounded like we were all allies in the conservative cause.

But then, everything changed. After the solar incentives were eliminated, the second group dropped the cloak of standing up for free markets and, contrary to conservative principles, set out to use government to tilt the market to suit its purposes.

How? By proposing to pass a law that said no farmer could rent his land to a solar farm without the government’s permission. In other words, they want to use government to accomplish their goal of stopping solar energy.

That is not my idea of freedom. Or of protecting the free market. The government has no business getting into the business of telling a farmer how he can or cannot use his land.

Asking Permission

He works from sunrise to sunset, spent the last 40 years raising his family, sent his children to college (where they graduated without debt), contributes to his church, pays his taxes to help build the public schools and he’s done it all by growing corn and wheat and raising chickens and hogs.

He’s a farmer.

When it rains too much he can’t plant and when it rains too little his crops wither. It’s hard to know which is worse, late spring frosts or the early fall frosts. A microscopic virus can wipe out all his chickens and, as he watches, months of backbreaking work (and money) disappear.

He wonders sometimes what he’s done to deserve the treatment he receives from Mother Nature – he both loves and curses nature. In the end, like his father and grandfather before him, he simply rolls up his sleeves and goes back to work to dig out of whatever hole he’s in.

One day not long ago a man came to see him who wanted to lease the back 40 acres, where nothing hardly ever seemed to grow, for a solar farm. His wife liked the idea.  She said it would be the first time they ever received money that did not require their own sweat to earn. It would also mean no longer having to mow 40 acres of brambles every winter, after the yellow jackets were gone.

But now it looks like he may have waited too long to sign the agreement.

A bureaucrat sitting in Raleigh has decided he – the farmer – doesn’t have enough sense to decide whether to rent his land. That the government needs to tell him what to do. So now, it looks like, he’s going to need to ask a bureaucrat for permission to rent his own land.

All he can do is shake his head. And offer a silent apology to Mother Nature.

How Much Is Enough

It felt like a stick in the eye when the NC Commerce Department announced they were paying Corning Optical Communications $2.35 million in taxpayer funded incentives to move their headquarters from Catawba County to Mecklenburg County. It appears I’m not the only one feeling poked.

Even beyond using taxpayer money to help Corning move 500 jobs between NC counties, most people feel uncomfortable with idea of paying cash to a company to move to NC. It’s true that it sometimes works. It’s equally true that a corporation’s commitment to NC may not last any longer than the cash payments and the company moves on.

So why is paying corporate ‘incentives’ such a seemingly unstoppable juggernaut? The answer is politics. Woven into the state’s government and political fabric is a cluster of people who promote incentives for a straightforward reason – their livelihood depends on it. Those lawyers, lobbyists, and assorted political appointees make a better than average living advocating for government to hand out taxpayer dollars to out-of-state corporations – so they fight ending the incentives program.

But in the new NC business climate a couple of crucial factors have changed.

For years, NC had the highest Corporate Income Tax (CIT) rates among the southeastern states. So, the incentives cluster did, then, have a valid argument that cash was necessary to lure new corporate employers to NC – because our tax rates were higher than our neighbors. The result was a convoluted system of government handouts that, oddly enough, punished long term NC job creators while providing a steady stream of cash to support the incentives cluster and to keep politicians busy cutting ribbons on new plants.

Then, in 2013, the General Assembly started doing two things: 1) Closing tax loopholes and 2) Using those savings to cut tax rates. In all, the legislature has cut the Corporate Income Tax rate 57% — from 6.9% to 3%. You would think as the corporate tax rate dropped the need for cash incentives would fall too. But to the incentives cluster, none of that matters – instead the lobby continues to holler the same old line: ‘We have to give incentives because everyone else does’.

How about trying something new?

Let’s answer a simple question: How much lower does NC’s CIT rate need to be before incentives aren’t necessary and we treat all job creators the same?

Have we reached that point now? Which matters most: Lower tax rates? Or cash handouts to a few corporations?

After all, the incentives lobby perpetually crying, “We know you cut corporate tax rates 57%… but we still need to hand out ‘more’ cash to corporations” – cannot be the correct answer.

A Stick in the Eye

Sometimes serving in government reminds me of raising children. Every now and then our children start down the wrong road. When that happens, you may offer a word of advice – which sometimes works out fine. But, other times, you find yourself watching a slow motion car wreck as a life-lesson unfolds.

It makes common sense for politicians to look for a ‘sweet spot’ where good policy and good politics meet. But, more often than not, common sense is in short supply in politics and the opposite happens. Bad policy and bad politics meet.

In December, as part of its already controversial ‘Incentives Program,’ the Department of Commerce announced it was granting Corning Optical Communications nearly $2.5 million to move its headquarters to Mecklenburg County from Hickory.

As policy, what kind of sense did that make? The Commerce Department was paying a big New York based corporation to move its office – and 500 jobs – from one North Carolina county (Catawba) to another (Mecklenburg).

Politically, it didn’t make much sense either: The Governor’s Commerce Department had just given Catawba County the political equivalent of a poke in the eye with a stick. (Governor McCrory won Catawba County, which is losing 500 jobs, by a margin of 31,000 votes in his last election – while Mecklenburg County had given him a margin of 3,100 votes.)

At the end of the day, there’s just one bright spot in this mess: The Department of Commerce has just given us another clear reason why stopping the state’s incentives program, once and for all, makes common sense.

Central Planning

It wasn’t news when a report showed the NC Commerce Department has given nearly 80% of its incentives money (funded by NC taxpayers) to the 20 wealthiest counties; nor was it a surprise the Department gave most of the money (and tax breaks) to large corporations in big cities instead of small businesses in rural counties.

But one thing was odd: The Department’s explanation for this one-sided picture. The Secretary told the newspaper that giving incentives to rural counties, like Robeson County, is “central planning” – which, in his view, is dead wrong.

So it seems giving an incentive to a big company in Charlotte is free market economics at work but giving one out to a small business in a rural county is central planning.

With all respect to the Secretary, that sort of sounds like saying a cat’s a cat in Raleigh but in Alexander County it’s a weasel.

I think there are three reasons most incentives go to urban counties.

First, it’s a cold hard fact that large corporations have the political muscle to get their hands on lots of incentives – while a small business in a town like Hickory has little or no chance at all.

Second, it’s also no secret our leaders, both the Republicans and Democrats, have embraced the idea that the best way to create jobs is by turning our two largest cities into the gridlock we know as Atlanta – while leaving nothing much in the rest of the state but unoccupied farm land.

Third, years ago, early in my career, I worked out a building lease with a large corporation. After the corporation signed the lease it went to the local government and asked what incentives were available to help pay for its move.

I thought surely – since the lease had already been signed – someone would figure out the corporation had already decided to move to Hickory. But I was wrong. To my amazement they gave away the tax dollars, and, looking back, I suspect they had a simple reason: It made them look good. They could claim their incentives grant helped bring jobs to Hickory.

I have a suspicion that’s how most incentives work. After all, Governors and Cabinet Secretaries and bureaucrats in the Department of Commerce all like to look good.

Incentives, by their nature, are crony capitalism. And there’s no avoiding political back scratching gumming up the works. But there is an alternative that actually is free market economics. For everyone.

We could abolish incentives. And use the savings to lower tax rates on all businesses in all counties. That would appeal to a big corporation with its heart set on moving to Charlotte and to a small business bootstrapping its way up in Alexander County. And we might not end up looking like Atlanta.

Coincidence

Like it or not, in the heat of a legislative session, when bills are flying, it doesn’t leave much time for reflection.

Early last session Cumberland County Representative John Szoka, a retired Lt. Colonel, filed a bill that sent ripples through the utility establishment, by crossing a long-standing line in the sand which prohibits people buying electricity directly from private companies (like solar companies), instead of Duke Energy.

Now, the biggest purchaser of electricity in Lt. Colonel Szoka’s community is Fort Bragg, home of the 82nd Airborne Division. And it turns out, it was no coincidence Rep. Szoka introduced that bill.

It also turned out, when it comes to Fort Bragg, or anyone else, buying electricity from private companies, Duke Energy was not amused. Szoka’s bill went nowhere.

As I said, back then bills were flying so there wasn’t much debate. And it wasn’t until later that I read a news report about the North American Aerospace Defense Command (NORAD) spending $700 million to move back into Cheyenne Mountain near Colorado Springs – the Cold-War era bunker that housed those protecting the continental U.S. from air attack since the sixties.

The U.S. military, as usual, didn’t offer much explanation. But the NORAD head did mention that Cheyenne Mountain was “EMP-hardened”.

EMP stands for Electromagnetic Pulse which is what happens if a rogue nation explodes a nuclear warhead in the atmosphere 30 miles over the U.S. There is no sound or blast damage or even radiation poisoning. It simply sends an invisible pulse wave across the country that fries all electronics – your house, your car, the commercial jetliner you are riding – and whatever was running stops. The unprotected electrical grid also stops – permanently. Which means no electricity for your home.

That sounds like a science-fiction nightmare. But, sometimes, far-fetched threats prove to be real and NORAD was preparing for this one.

Which puts Rep. Szoka’s bill in a whole new light: Because at the same time NORAD was spending $700 million to move back to Cheyenne Mountain, the General Assembly was saying no to Fort Bragg which wanted to take steps to control its own future supply of electricity.

So let’s put a peg down: The General Assembly needs to give Rep. Szoka’s bill a second look – and have a real debate. 

Crowing

The other day I opened an email and there was an article by Chris Fitzsimons blasting away at the General Assembly, saying Republicans had cut taxes on the rich and raised taxes on the poor. By now, Chris has said Republican-Tax-Plan-Helps-Rich so often the words must have a permanent place on his clipboard.

Then I opened another email and saw something you don’t see every day. A newsletter from a member of the State House crowing about how he and other House members had whipped the Senate in the tussle over tax reform. And he had a point. The House did win.

Now, at first glance, those two emails may not even seem connected. But they are.

Because, in a way, when the House whipped the Senate, it handed Fitzsimon the ammunition for his broadside.

Here’s what happened: Bob Rucho is the leading ‘Tax Reformer’ in the Senate. And he carefully wrote a tax bill that cut taxes on low income people the most. Let’s use a married couple as an example: Currently no couple pays taxes on the first $15,000 they earn. Senator Rucho increased that tax exemption a lot. By $2,500 to $17,500. Which clearly helped low income families. Because more families would pay no taxes at all. Plus, all families, including low income families, would pay less income tax.

Senator Rucho also cut the income tax rate. Another tax cut for everyone. But he increased sales taxes. A tax increase on everyone that folks like Chris Fitzsimon are quick to say hits low income families hardest.

At the end of the day, when all was said and done Senator Rucho’s plan cut taxes a net of $646 million over the biennial – with the tax cuts skewed toward giving low income families the most tax relief.

But when the bill went over to the House, Representative Saine and friends didn’t agree with the Senate at all. They did keep the cut in the income tax rate. But then they raised fees $200 million (which hits low income people hardest), allowed full deductions for medical expenses and charitable deductions (which helps wealthier people more) and threw in another tax break that helped wealthy developers renovate older buildings.

Then, finally, they reduced Senator Rucho’s $17,500 personal tax exemption to $15,500. Which tilted the whole playing field. They’d raised fees. And increased sales taxes. But taken out almost all of the tax reduction that helped low income families the most.

Representative Saine has every right to crow. The House did have the final word on Tax Reform. But wouldn’t it be nice if, just once, after passing a tax bill, we didn’t have to listen to folks like Chris Fitzsimon wailing that Republicans cut taxes on the rich and raised taxes on the poor.

Secret Societies

It was more than a little odd.

The Democratic Leader of the State House called a press conference and got up and announced he’d discovered a Republican ‘Secret Society’ at work in the State Legislature – which had a ‘secret’ plan to cut state employees fringe benefits.

Now a lot goes down at the backrooms of the General Assembly – bills get changed, budgets get bartered, and deals get made. But Democratic Leader Larry Hall must have been reading too many spy novels: Because he’s giving Republicans too much credit. What goes on in the legislature is more like organized chaos than a well-oiled conspiracy.

Secret Societies aside I, for one, am glad Hall brought up the state employees fringe benefits. It’s time someone did. Because it’s one of the most cynical political games ever played in Raleigh.

It worked like this (under Democratic legislatures) for years: Politicians tell state workers, We’re sorry but we can’t pay you as much as you want this year – but we can offer you wonderful fringe benefits like exorbitant pensions and free health insurance for life.

For the politicians, that gambit worked like a charm: 1) They gained the votes of state employees; 2) then paid for their promises with I.O.U.’s instead of cash; 3) which meant they didn’t have to raise taxes and lose the votes of taxpayers.

But, now, the chickens have come home to roost – the politicians can’t sweep the problem under the rug anymore, because the pile of IOUs is bigger than the rug.

Earlier this summer, the legislature’s non-partisan Program Evaluation Division reported unfunded retiree healthcare benefits add up to a debt owed by the state of $25.5 billion.

Let’s put that in perspective: $25.5 billion is billions larger than the whole state budget.

It’s twelve times bigger than the $2 billion or so bond legislators propose to put on the ballot for voters to approve next year and, when it comes to this $25.5 billion, there was no vote of the people to approve one penny of the debt.

Even scarier, the PED reported the debt (for this unfunded liability) is growing like kudzu – by $2.5 billion each year.

The politicians in Raleigh have flummoxed state employees with promises of grand pensions and lifetimes of free health insurance – and flummoxed taxpayers by not setting aside the money to pay for their promises. And Larry Hall knows all that. Because, as I said, most of the promises were made by past Democratic legislatures.

Despite the Democrat’s tremors, there are no secret societies in the legislature. But there is a secret problem: A $25.5 billion debt. And I’d like to hear how Representative Hall proposes to pay those bills.

Adjusting the Sales Tax

There is a peculiar and rarely mentioned anomaly in how North Carolina has, for years, allocated sales taxes to different counties.

We have heard a lot (actually more than a lot) recently about the State Senate’s plan to change how the state allocates sales taxed between counties. In a nutshell, the Senate shifts sales tax revenue from twenty urban counties to rural counties. And we’ve had a long, acrimonious debate with almost everyone pounding the table demanding more money. But we’ve had almost no debate about the most fundamental question of all: What is fair?

Additionally, in the 16 pages of the Senate version of House Bill 117, there’s one change that hardly a soul has mentioned: The elimination of what’s called the “adjustment factor” – a key but little known part of the previous plan.

The adjustment factor worked like this: Let’s say that Alexander County sent $100 in sales tax collections to the state. The state then applied a 100% adjustment factor and returned $100 to Alexander County.

But with Catawba County, the state applied a different adjustment factor – 99%. So when Catawba sent $100 to the state it only received back $99. Less than it sent.

Applying the adjustment factor meant counties like Mecklenburg took a big hit – every time Mecklenburg sent $100 to the state it only got back $89. But other counties, like Dare, were well rewarded. Every time Dare County sent in $100 to the state it got back $149.

One would hope that, years ago, there was some rational theory at work when the state set those adjustment factors – but it may also be what was at work was politics. After all, the leader of the State Senate for years was Marc Basnight from Dare County.

Reforming an unfair tax system is inevitably a painful process. Every county, naturally, wants more money. And there are always winners and losers. But still, when you cut through the politics, the fundamental question is still: What’s fair? After that it’s simply a matter of legislators having the courage to follow an old adage: Doing the right thing is the right thing to do.