Medicaid

After over 35 years as a businessman, I have learned – the hard way – that at times, with the best of intentions, you wake up one morning to find you’ve gotten yourself into a new business that doesn’t work. It looked like a good idea when you started, but, after you rolled up your sleeves and went to work, you found out it either wasn’t what you expected, was beyond your ability or expertise, or was just a bad idea.

That’s called a ‘learning experience’ – and that’s what came to mind when I read the Observer report that “A state audit of the $13 billion Medicaid budget revealed a rat’s nest of problems from overspending, bloated administrative costs and violations of the law.”

State Auditor Beth Wood – a Democrat – was equally blunt. In her audit, Wood reported the Medicaid Department has spent $1.4 billion more than its budget over the last three years and its overhead costs are $180,000 higher per year than other states our size.

In other words, after 12 years of mismanagement and neglect by two Democratic Governors (Mike Easley and Beverly Perdue), we have a multi-billion dollar train wreck on our hands – that should give even the staunchest believer in more government a moment’s pause.

And now, to complicate the problem further, the Obama Administration would like the state to expand Medicaid by 31%.

But does that make common sense – to expand a program that has turned out to be the poster child for government mismanagement by billions of dollars?

Here’s what does make sense: Fix what’s broke first. Give newly elected Governor McCrory time to fix a dysfunctional Medicaid Department and create a new system that works for both the recipients and the taxpayers. Then, after the problems are fixed, we can argue over whether we should expand Medicaid 31%.

Observer Article: Audit – State overspent Medicaid budget by $1.4B

Banning Liberal Arts

The other day I received an email from a lady I know in Hickory, asking me to look at a petition she’d signed opposing ending liberal arts classes at UNC. I clicked on the link to a website, read the petition, sat back and thought, The Governor wants to dismantle the liberal arts program at UNC?

Next I clicked on the News & Observer’s website to see just what the Governor had said – according to the newspaper, during a radio interview he’d explained he wanted to change funding of state universities to emphasize preparing students for jobs. He’d only said a critical word about two courses: Teaching basketball players at UNC Swahili (a course criticized during the athletics scandal) and ‘Gender Studies’ (which he doubted was touchstone to a job). Then he’d added, “I do believe in liberal arts education. I got one.”

Then I scrolled down the page to read the comments on the newspaper’s website and the world turned upside down into an elbow-throwing political brawl with people saying things like ‘the Governor’s against teaching liberal arts’ because he wants people to be idiots so they’ll vote for him. Sometime after that, 10,000 people had signed an Internet petition to save liberal arts programs at UNC – which, as far as I can tell, no one ever meant to ban in the first place.

When I finished reading, I wrote the lady back and explained the good news was the liberal arts are safe at UNC, and the bad news was we have a problem with political debates on the Internet – which are dysfunctional.

Unemployment Insurance

Back in early December, I supported the House bill to fix the Unemployment Insurance mess now moving through the General Assembly. But after Congress changed the game, I believe it is time for a new look:

North Carolina has a train wreck on its hands: The state fund that pays unemployment benefits is ‘empty’ and has been empty for years. In fact, since the recession began, the state has had to borrow $2.5 billion from Washington to pay its unemployment benefits.

Now Washington wants its money back and it’s going to get it back by raising federal unemployment taxes on businesses in North Carolina – and that new tax is a job killer.

To protect jobs the General Assembly came up with a plan to reduce state unemployment benefits on July 1. The logic was straightforward: Cutting benefits will save $1.7 billion and that savings can be used to reduce our debt to Washington – so North Carolina businesses would pay $800 million in new federal taxes instead of $2.5 billion.

But, then, when Congress passed the ‘Fiscal Cliff’ bill it threw a monkey wrench into the works.

Congress doesn’t want states – like North Carolina – to cut unemployment benefits. So it said if we cut ourstate benefits this year it will stop all federal emergency unemployment benefits to North Carolina workers (those federal benefits go to people who have been out of work more than 26 weeks).

I asked the legislative staff, How much money is that? Their answer was: $600 million.

Then I asked, What happens if we delay the cut in state benefits until next year?

Their answer was: We’d keep the $600 million this year but add $200 million in additional debt (to the state’s insurance fund) which businesses would have to pay back sometime after 2015.

So, that’s the question: Do we want our economy to lose $600 million this year or $200 million sometime after.

We can pass this bill but, if we do, Washington will take $600 million out of our economy which families would have spent in retail stores and grocery stores – which can hurt a lot more people than just unemployed workers.

Or we can delay the state benefits cuts until January 1st of next year and keep the $600 million – but then, three years from now, businesses will be faced with paying $200 million more in taxes.

What Washington is doing to our economy is wrong and it would be satisfying to dig our heels in and say to Congress: We’re going to cut our state benefits on July 1st – and we don’t care whether you like it or not.

But two wrongs don’t make a right and we’d be wrong to compound our economic problems – especially in Hickory where unemployment is higher than in most parts of the state.

To rebuild our economy, we’d be wiser to delay the state benefits cuts for six months, keep the $600 million, strengthen our economy, and then, over the next three years, find a way to lift that 2015 tax increase off businesses to protect jobs.

Federal Unemployment Insurance

Our state constitution mandates a balanced budget. But it turns out there’s a loophole and, over the last four years, one department of state government has incurred a 2.5 billion dollar debt – by spending money off budget.

Early in the recession, in 2009, job losses drained our state’s unemployment fund. The reserves were gone. The money was gone. But the number of people filing unemployment claims was going up. So, Washington stepped in and loaned the North Carolina Employment Security Commission $2.5 billion dollars to pay unemployment benefits – off budget. Now, Washington wants its money back and using a claw back provision that would make a Wall Street banker proud, it’s determined to get it.

There are two unemployment taxes: FUTA, the federal tax; and SUTA, the state tax. Washington has ordered a tenfold increase in the FUTA tax paid by North Carolina employers from $42 to $420 dollars per employee per year – to be phased in over the next a decade and a half.

So just when small businessmen hoped they were seeing a light at the end of the tunnel – instead they’re about to get run over by a big tax increase from Washington putting a roadblock in the way of North Carolina creating new jobs.

And that’s not all. The FUTA tax isn’t spread equally over all employers. Instead, some pay it and some don’t. For instance, government doesn’t pay FUTA taxes. Not a penny. Neither do non-profits that employ thousands of people. While they pay a reduced state tax, it means government gets a free ride on the federal tax and small businesses pay the bills.

The issue here isn’t just money or taxes – it’s jobs. And this is a case study of how government makes it harder for small business owners to create jobs.

Op-Ed: October 27th, 2012

Losing 33,000 jobs in the Hickory area over the last decade has been hard and has touched everyone in our community – financially and personally. Getting the economy back on track – given the hole the politicians have dug – won’t be easy or simple.

Studies show that when the recession began families across America acted responsibly – they cut back on their spending and paid down their debts. At the same time, the politicians in Washington moved in the opposite direction. They spent more and borrowed more. President Obama told us – we can spend our way to prosperity. But recycling that old idea didn’t work.

Now the politicians in both Washington and Raleigh have to do what families across America have already done – act responsibly by cutting spending and debt.

While we are at it, this is a good time for a serious, in depth, discussion about the role of government. What should government do and what shouldn’t it do?

The federal government provides low income people with free cell phones and North Carolina state government implements that program. Now, should government be in the cell phone business? Or would we be better off with less government and economic policies that create jobs – so people can buy their own cell phones?

That’s an example of a government program most people would agree we can do without. But doing away with other programs is more controversial. Under current tax law, when the people of the Catawba Valley go out and spend a million dollars on cars, they will collectively pay $30,000 in taxes on the sales. But if someone spends the same million dollars on an airplane, due to a loophole, the tax is capped at $1500. A lot of economists argue we’d be wiser to eliminate the loopholes and reduce the overall sales tax rate. Of course, if you like airplanes, that may not sound like a good idea.

We will grow the economy and create jobs when we reduce the size of government while simplifying and reducing taxes. The timing won’t get any better.

North Carolina’s CEO

Let’s take a step back from the philosophical debate between Republicans and Democrats over the proper role of state government and consider a practical fact: State government has not had an actively engaged CEO in twelve years. As a Republican, saying this doesn’t come easy, but after over a decade of absentee leadership even Governor Hunt is beginning to look good.

As a businessman for 35 years, it’s hard to miss the problems created by the leadership vacuum at the top of state government. In some cases, entire state bureaucracies are running amok.

At the Department of Environment and Natural Resources (DENR) the bureaucrats have redefined their mission. Their job’s no longer to simply protect the environment – it’s to stop growth.

Over at the Department of Transportation (DOT) we have unelected bureaucrats brushing aside the ownership rights of citizens by taking private property without compensation.

In an interesting irony, we also have bureaucrats at DENR and DOT at odds with each other. DENR is telling DOT to incur millions of dollars in additional highway construction and maintenance cost. Of course, it all ends up being at the taxpayer’s expense.

The workers’ compensation insurance program is an example of something worse than over regulation. Like the examples above, there is the usual layer of rules raising the cost of business and sending jobs to other states and countries. But workers’ comp has an additional impact. Instead of only smothering business with excessive regulation, NC’s workers’ comp program uses a pattern of regulation that is so randomly enforced that only the honest businesses comply. Then, finding themselves with excessive and noncompetitive labor costs these businesses face two choices- Join those that skirt the law or close their business.

That’s all part of the price we pay for leaderless state government. While micro-managing the bureaucracy is not the role of the General Assembly, it is past time someone stood up for the taxpayers.

This much is clear: Our regulatory environment is out of control and we are paying a huge price – it’s choking business in North Carolina and costing us jobs. After twelve years without leadership at the top of NC government, with a faltering economy and massive job losses, now is the time to right the ship.

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.