Get Politics out of the Tax Code

One of our problems – and a big reason for our ‘Great Recession’ – is government trying to manage the economy rather than letting free markets work their magic and create jobs.

The Charlotte Observer and the Raleigh News and Observer have been reporting on an example of government using the tax code to manage the economy.

Politically, it’s hard to argue against tax breaks for hospitals. It’s even harder to argue against tax breaks for ‘non-profit’ hospitals. After all, who can fault a ‘non-profit’ hospital for managing our flawed tax code to its advantage? But in this case the term ‘non-profit’ is a bit misleading.

Our community is blessed with two hospitals. One is for profit and one is ‘non-profit.’ However, under our current tax code the ‘non-profit’ pays no property taxes (or income taxes) while the for profit pays approximately 3/4 of a million dollars in property taxes every year.

But, you say, non-profit hospitals treat patients who are needy and can’t pay and that’s why they receive special tax breaks. So what’s the big deal?

Well, it turns out, for profit hospitals and the non-profit hospitals both care for needy patients. If you’re poor and get sick and go to the emergency room, neither hospital can turn you away.

Last year in North Carolina ‘non-profit’ hospitals made hundreds of millions of dollars in ‘profits.’ Twenty-five executives at non-profit hospitals earned over $1 million. One non-profit CEO made $8.7 million in salary and compensations. Theoretically, if you pay the executives enough, any corporation could be a ‘non-profit’.

According to the newspapers, the tax breaks given to the non-profit hospitals are a lot bigger than the costs of the care they provide the needy and indigent.

How did this happen? The answer is politics. The tax exemptions for ‘non-profit’ hospitals’ are the result of lobbying and political clout. There’s no point blaming the non-profit hospitals. That’s the way our tax system works and they’re naturally taking advantage of it. But there has to be a better, more efficient system that does not favor one hospital over another and which rewards hospitals for the actual care they provide to the indigent rather than granting them across the board tax breaks whether they provide indigent care or not.

When politicians and lobbyists go to tampering with the tax code the result is a mess. Our current ‘politicized’ tax code is inefficient, hurts our economy and manipulates the marketplace which ultimately costs us jobs. So let’s get politics out of the tax code and government out of managing the economy. Who wants politicians picking winners and losers? It’s time to start over and create a tax code that levels the playing field, rewards efficiency (instead of subsidizing waste), and lets the free market create jobs.

The Local Tax System

At times, government gets a program so thoroughly twisted and convoluted it makes sense to just discard it and start over rather than trying to tweak it to straighten out the mess.

Our state and local tax code is a good example.

Over the last century, the legislature has created a tax code only a lobbyist could love. The recent hubbub over Conover’s new tax on Wal-Mart and other retailers is an example because how those taxes were raised exposes a big flaw in our tax code.

For politicians, raising taxes is a risky business. Naturally, they prefer to raise taxes – like this one – where they can say the tax will be paid by large merchants (like Wal-Mart) instead of you and me. In fact, Wal-Mart isn’t going to pay this tax. What really happens is Wal-Mart’s computer adds the new tax to the cost of business and increases prices and passes the tax straight along to shoppers. You and I still pay the tax, even though it doesn’t show up on our receipt like the more obvious sales tax.

That’s how a ‘hidden tax’ works. You pay it but don’t see it. It’s one of the big flaws in our tax code and it’s there for one reason: Politics.

Instead of being ‘hidden’ taxes should be obvious. You should see it. You should know it. That’s the only way you and I can hold the politicians accountable when they raise taxes.

Unfortunately, the politicians have crammed our tax code full of hidden taxes that are not seen but are always felt – and paid. And these taxes sap jobs out of our economy and cash out of family budgets.

In North Carolina, hidden taxes happen all the time. Look closely at your phone bill or your internet bill. In other cases – like the Wal-Mart tax – they are so cleverly hidden you can’t see them at all.

Reviewing a typical city budget reveals a related problem. Approximately one third of the local government’s revenues actually come from state taxes that are collected by Raleigh and partially returned to local governments.

This is good deal for local elected officials-they avoid the blame for raising taxes. But it also means they give up control of their income. They become dependent on Raleigh – just as states have become dependent on Washington.

It’s also a problem for the rest of us. If people in Catawba County pay local taxes to local government they can hold local elected officials accountable. But when local tax money flows to Raleigh and then back to Hickory or Conover, it’s impossible to hold some State Senator across the state in Currituck County accountable.

Here’s a solution: Let’s eliminate hidden taxes. Just throw them out. End them. Then let’s eliminate tax transfers back and forth with Raleigh. Only then will taxpayers be able to know what our government really costs and be able to hold the people they elect accountable.

Tier System

My involvement in the local business community offers exposure to the foolishness in North Carolina law that is largely unknown by men and women who pursue other careers.

Currently, a local businessman trying to survive in today’s economy faces untangling a web of 100+ years of laws granting special favors and preferential tax treatment to groups.

Of all the creations of our state government’s planned economy crowd, the strangest may be the “Tier Designation.”

Most people have never heard of it, but it affects everyone in our state. “Tier Designation” is an annual ranking by the Commerce Department dividing counties into three categories in order to help the bureaucracy in Raleigh determine who gets the most ‘loot’ from state government.

The result is striking. Now, business incentives are not just given to help a city in North Carolina compete against a city in Virginia or South Carolina, but they are also given to help one North Carolina county compete against another. Social planners in Raleigh use this technique to redistribute our tax dollars within the state to deal with perceived inequalities.

It actually happened when Facebook chose to locate its new data center in Rutherford County. Raleigh told that business considering locating a plant in Catawba County that they would receive more tax subsidies by choosing to locate in Rutherford County instead of Catawba.

In other words, we have state government shoving business from one county to another – that’s what “Tier Designation” does.

You have to wonder how Catawba County, which is part of an area that has lost 30,000 jobs, missed being ranked as a “Distressed County” on the “Tier Designation”. Instead, when we compete for new business with our neighbors, we also compete with the state which provides a greater subsidy to a business that locates in Rutherfordton rather than Hickory.

When the government starts picking winners and losers between businesses it’s bad enough. When they start picking winners and losers between counties it’s even worse.

The Garbage Tax

Hickory’s been losing jobs for a decade – over 30,000 jobs. As a consequence, our streets are lined with shuttered mills and factories. The problem arises when a business person comes to town considering locating a store or plant here and one of the first things in view are rows of empty buildings. It makes one wonder – is Hickory the best place to move to?

I joined others supporting a moratorium on demolition landfill fees to encourage private sector clean-up of derelict factories and mobile homes littering our local landscape. After we remove the debris, we can get on with rebuilding.

In response, my Democratic opponent for the State House weighed in against even a temporary tax cut for all Catawba County citizens and local officials pointed out that nearly 10% of the ‘garbage taxes’ I opposed were state imposed.

The state ‘garbage tax’ is a hidden tax so few have heard of it. Every time you pay a ‘tipping fee’ at the landfill directly or indirectly (the waste fee in your municipal utility bill), $2.00 of the $23.00 per ton goes straight to the Department of Revenue in Raleigh.

In all, NC citizens send to Raleigh $24 million a year in ‘garbage taxes’. What happens to that money? First, the Department of Revenue takes $225,000 off the top for ‘collection’. With 132 landfills in North Carolina sending quarterly garbage taxes to Raleigh, Revenue is handling 528 checks per year for a fee of $426 per check.

Next, Department of Environment and Natural Resources “retains” another $1,050,000 for ‘staffing.’

We send $24 million to Raleigh only to have $1,275,000 raked off by the bureaucracy and then they send the rest back to the communities the money came from in the first place. The solution is obvious: Eliminate the tax, cut the landfill fees and just keep the money here at home.

Years of Soaring Debt

If you wonder why I talk about cutting spending, take a look at the chart below and consider the inheritance we are leaving our children. We went seriously off-track in 2000 and it’s time for a course correction. , or simply click on the chart itself.

This chart is one slide of a presentation by Jeff Gundlach of Doubleline Funds titled “The Decline and Fall of the Roman Empire.” If you are interested in an investment based analysis of our political efforts, it’s worth a look at the link below:

http://www.businessinsider.com/doubleline-jeff-gundlach-us-decline-fall-roman-empire-2012-2#-2

Time to clear away the debris!

96th House District

After a hurricane, before you rebuild, you have to clear away the debris.

Here in Hickory we are in the midst of a man-made hurricane — an economic disaster— and before we can rebuild we, literally, have to clear away the debris.

A look at our community shows what I mean: We drive by old buildings, vacant buildings, shuttered furniture factories once filled by businesses and deserted houses and mobile homes where families once lived who have left our community because there are no longer jobs for them.

Those old, vacant buildings are the debris of our economic crash. They are privately owned — so why are they a public issue?

Because public policy is standing in the way of cleaning up the debris by making the cost to demolish an antiquated factory higher than the market can bear. Here’s how it works: Recently, I requested bids to demolish a long outdated building for a client. I also asked the contractors to separate the cost of actual demolition (and transport of the debris) from the government imposed fees charged at the landfill.

When the bids came back I received a shock. The landfill fees represented half the cost — they cost as much as the demolition, the loading and the hauling away of the debris combined. Which is one reason antiquated buildings are sitting vacant instead of being removed to provide space for new buildings.

The solution is straightforward: For government to waive the landfill tipping fees for a “Spring Cleaning” so it will be easier for property owners to go to work cleaning up our community.

Imagine the result of cutting the cost of removing a dilapidated building in half. Or, to put it another way, see what happens when we get government out of the way of the private sector.

This one change in government policy would lead to construction jobs and grading jobs and trucking jobs at little public cost.

It’s an odd but logical fact: We tax those that demolish obsolete buildings — so we have streets lined with antiquated buildings which are standing in the way of revitalizing our community and rebuilding our neighborhoods into a promising future.

JOBS

I’ve had the opportunity to speak to some of you and you have heard my main issue is the job losses facing our community.

Below is what those job losses look like in chart form:

The chart above was drawn using data available to anyone on the NC Employment Security Commission web site. It only goes back to 1990 but clearly we have returned to job levels of 25+ years ago.

This is average annual employment so the 2011 numbers are not complete and posted.

Also, the annual averages represent a lower than actual total drop in jobs. Our peak employment in June 2000 of 183,837 is 40,041 jobs above where we were this past October when we hit 143,796. And that latest jobs number is 2,749 jobs lower than in October a year ago (please forgive me if I round that to 3000 when speaking).

You may wonder why I am talking about jobs when the news always talks about the unemployment rate.

Jobs tell us how many people are actually working. Jobs drive the local economy. Everything from retail sales to the value of your home to local tax revenues depend on a healthy jobs environment.

The unemployment percentage is a little different. The unemployment rate is a comparison of the total Labor Force compared to those unemployed folks that are looking for work. The thing is, if everyone that didn’t have a job suddenly stopped looking, you might read in the paper that unemployment was zero, but it would not be a good thing.

So, jobs, not the unemployment rate is what we need to pay attention to.

I am not telling you this to depress you. I am sharing this because knowledge is power.

Before we can correct a problem, we must understand, define and clarify that problem.

I look forward to continuing our conversation and I need your help and support.

Some positive thoughts on our area

On a more positive note…

Hickory and the surrounding area is blessed with an abundance of gifts. While we are less than an hour from the Charlotte airport and situated at the crossroads of I-40 and US Highway 321, we are minutes away from incredible natural beauty.

Unlike many areas of the region, we have an abundance of clean water. That is both an opportunity and a responsibility. We need leaders that understand the benefits of promoting that water resource while protecting its quality and defending it from those water-short areas that will take our water for their own purposes if it is possible.

We have considerable room for business expansion capability in our highway, water, sewer and electric infrastructure.

We have a labor force that is both skilled and willing to work.

The total of those assets make us unique and there is no reason we shouldn’t thrive.

What we need is aggressive leadership that will turn those assets into jobs.

Car Inspections

My wife looked up at me last Thursday and asked, “Why is it you think the North Carolina Legislature is capable of passing major tax reform when they cannot even pass a bill to eliminate unnecessary safety inspections of new cars?”

We were having breakfast and reading about how a legislative committee had, the previous day, killed a bill to end annual safety inspections for new cars less than three years-old cars likely still under the manufacturer’s warranty and for which there are no data indicating any safety hazard.

The spokesman for that legislative committee pontificated, in effect, on how these inspections were a necessary jobs bill for the inspection garages. Based on news reports, no one in the legislature disagreed. It was only the media that later talked about the unnecessary expense and waste of time for the average citizen.

Now I am all for jobs. But we don’t create jobs or a vibrant economy when the government starts picking winners and losers by forcing some people to spend their money so that other folks can make more money.

I’m with the media on this one. It’s not so much about cars as it is doing the right thing just because it is the right thing. If our leaders can’t figure out how to do the right thing on the simple issues, how do we ever hope to handle the hard issues?

There are many complex issues facing our government. Many of them are and should be about creating jobs and growing the economy. It is my belief that a priority should be restructuring our state tax system to take out the very things, like car inspections, that get in the way of job creation and growing our economy.

The boost tax reform would give our ailing economy is obvious. But, as my wife pointed out, eliminating unnecessary car inspections seemed pretty obvious too – and one special interest stopped it dead in its tracks.