Now is the time for Bold Action

Right now our state is in a crunch. We will hit the end of this fiscal year with no budget deficit, mostly because of some severe steps that Governors Easley and Perdue took and will take. I don’t fault them, they are required to not run a deficit. However, next year will require a significant legislative fix if we are going to avoid a government shutdown to ensure the constitutionally mandated balance budget.

Now is the time for Bold Action to fix this. Yesterday I attended a luncheon hosted by the NC Policy Watch. The two speakers were Speaker Hackney and Elaine Mejia from the NC Budget and Tax Center (a project of the Justice Center). The state of our budget is grim, with a potential budget shortfall of at least 2 billion dollars. The economic stimulus before congress could help us out, but it is not clear when that will pass, how much it will end up bringing to the state and when that of money will show up. Further, the stimulus package will do a lot good things, but a lot of the money will be mandated spending that can’t be used to plug gaps.

There are a number of people who are proposing that we cut our way out of this, because if there is anything that the past has taught us it is that cutting government spending during a recession is a great idea….oh wait… But, even if you believe that cutting the size of the government is the best idea the questions becomes, what do you want to cut? Given the size of our current budget, each and every department would have to cut around 10% of their budgets to have any shot of closing the gap. That is a huge cut in spending, especially when you think about where that money is going.

As this economy goes down we are going to have to spend more on certain services. Can anyone imagine that there will be a lower demand on unemployment services, community colleges, jails or Medicare in the next few months? To say that there will be is absurd. We already don’t have enough schools and don’t have enough teachers, so how can we not help counties afford the growing demand for education from our expanding population? At the luncheon, Elaine Mejia said that to solve this crisis through pure spending cuts we would have to cut out the entire budgets for the Department of Corrections and for Community Colleges. I can’t imagine there is a single person in this state that would support that “solution”.

So obviously we can’t solve this through budget cuts. Therefore we need to find some compromise that includes cutting spending and increasing revenues. That is not exactly a popular position at a time like this, but it is necessary. However, there seems to be zero support for a reality based approach to revenue increases within the legislature. In interviews with Under the Dome various legislators have proposed an increase in existing taxes, or an expansion of sin taxes, but that is about it.

I have a much simpler solution. We must spread out the base. Currently in North Carolina only about 1/3 of all transactions are covered by the state sales tax. A lot of the covered purchases are for things like bread and milk, not exactly high revenue generators. In the same vein, a study commissioned by the NC Budget and Tax Center looked at tax rates in the state. They found a number of glaring problems. Their full report can be found here (caution PDF). You can also view a number of enlightening graphs here. I can’t paste these graphs so please click on that second link.

First of all, North Carolina’s income tax is incredibly progressive in its construction. However, when you add on other taxes that are paid by every citizen of our state, the tax picture becomes much more regressive. More specifically, the lowest 20% of our state’s citizens pay 10.7% of their annual income to local and state government. This is a combination of sales taxes, income tax, property tax, etc. However, the top 1% pay only 7.1% of their annual income in taxes. Now, at a minimum, shouldn’t all North Carolinians pay similar amounts? Why should the least able to pay have to pay so much more? I don’t have a silver bullet fix here, but what if North Carolina instituted some form of the Alternative Minimum tax aimed at the top percentage earners in our state that was tied to inflation so as to avoid the constant fixes required by the federal version? Maybe that isn’t the right solution, but I think it deserves some debate.

The report goes on to list some specific changes and the benefits. Closing corporate tax loopholes was studied by a nonpartisan commission in 2001 and would have yielded $300 million in revenue for that fiscal year. 8 years later I imagine that number will have gone up. If not it is still 1/6 of next year’s deficit. They also proposed the lifting of the sales tax cap as floated by Sen Berger, a fix that would certainly help. To offset some of these, and avoid problems with a potential decrease in demand during this time of crisis we could institute some sort of drop in the sales tax on essentials such as bread and clothes. The simple solution in my mind to the political equation is to make more people pay less, rather than keeping such a narrow focus in who pays.

The depressing thing in all of this is that we are in trouble. And according to insiders such as Gary Pearce the legislature is going to be fearful of big action in anticipation of the 2010 elections.

So don’t expect anything too bold or radical from this session.

But, this state cannot afford inaction. We absolutely must move quickly to protect state government. The price of inaction is too high. How many unemployed are we willing to see go without benefits? How many children don’t deserve health care? How many workers are we willing to further punish for something they didn’t cause with layoffs in state government? I hope that our answers are zero, but I fear our legislators just don’t have the chutzpah to make it happen.

Comments

Don't make the innocent pay

Children, the poor, state employees, the newly laid off. None of these folks are responsible for this downturn in the economy, and none are responsible for the drop in state revenues. So why should they be the ones who pay?

"Keep the Faith"

I'm just gonna say this one more time....

Blue South....why is it that we're not considering significantly increasing tobacco and alcohol taxes to help with our budget shortfall in NC? I mean, both of these "sins" are voluntary...a choice. No one forces anyone to smoke or drink alcohol. To me, it's just so political not to increase the taxes on these things. History has told us that increased taxes on these things don't cause people to stop smoking or drinking. It's just something we should do. The increase in revenue into the NC general fund would be immense if we were to increase taxes on just these two items.

Look, I've said here a number of times that I don't smoke so I know I won't be affected...but I do have a brew now and again and I do have a mixed drink before dinner most every night...and so do most republicans regardless what they tell ya. It's just something we need to do. I am just so pissed that our representatives don't go to this source. It's not about religion or morals and such. It's just good fiscal decision making.

The best thinking is independent thinking.

Not enough

I don't think it would be large enough. I don't think that its a reason to take it off the table, but the estimates say that...

each 1-cent increase in the 35-cents-per-pack cigarette tax raises an additional $5.35 million.

The state taxes beer at 53 cents-per-gallon, and each 1-cent increase would generate another $1.9 million annually.

So I agree with you and Senator Basnight that we should look at those options, but its just not going to be enough.

"Keep the Faith"

It's just one of many good approaches

I don't say that significantly increasing taxes on tobacco and alcohol will solve all our problems...but it's just one of many good approaches. I think you know what I'm saying here. I know that every suggestion can be said to be "not the silver bullet"...but there are a number of things our politicians have been afraid of before that they need to do now...and these are two of them. Glad you agree with that.

The best thinking is independent thinking.

Well..

While my math isn't that great, why not go 10 cents on each. That would put the estimates to $70 million annually. Even if the price increase decreases demand, we are still talking about a solid $50 million in revenue.

Also, it might be a good time to bring up bumping the gas tax while prices are low. This would have to be done before summer and would probably have to have a sunset clause based on cost increases, but could deliver some good revenue in the short term without pinching the pocketbooks.

I think thats great

I think 10 cents is doable politically, and the 70 million would be great. But that is only about 3% of the total deficit.

"Keep the Faith"

So a $1 tax on cigarettes would raise $500 million

Sounds like a good plan to me. And, I don't want to hear people whining about how it will hurt tobacco farmers.

Where is the tobacco grown? Here.

Where is it shipped? There.

Where is it produced into cigarettes and chewing tobacco? There.

Where is it shipped in final form? There

Where is it taxed for consumption? There

Only a small part of the tobacco grown here actually comes BACK here in product form. Decreasing the need here is not going to decrease the need in the other 49 states and Puerto Rico. Nor in every other country in the world. So, instead of sending our tobacco out of state to be made into product (we get no benefit) and then letting it be taxed in other states for their own benefit (they fund community colleges, infrastructure, health care), which makes NC LESS COMPETITIVE, let's get some good out of it for the whole state.

Jesus Swept ticked me off. Too short. I loved the characters and then POOF it was over.
-me

My comments will be unpopular, but what the heck!

First, If anyone believes there isn't a significant amount of waste, bloat, and unnecessary expenditures in the State's budget, I'd like to have the facts on why not. New Hanover County is GIVING, without taxpayer input, $4.7 Million of OUR money to a Greek cement company to come here and destroy our environment to create 100 jobs. Remember the $40 Mil+ tax incentives to the rubber plants that weren't going anywhere anyhow? What about the law on the books that says 95% of all traffic ticket fines have to go to the school system...leaving the taxpayers with the bill to pay for costs in excess of the 5%? ($400K a year in New Hanover JUST for about 11-12 "red light" cameras.

I'm dead set opposed to new taxes. What I'm not opposed to is finding ways to spend our money in better ways. What about all the people we have in prison because they possessed (without intent to sell) small amounts of "illicit substances"? Costing us $gazillions...plus destroying families.

What about causing Developers to have to contribute to the infrastructure costs of the neighborhoods they create...that create needs for more schools and more hospital beds...and road maintenance and so on. (We have one new addition here approved for 6000 homes) Nah...we can't do that...the Real Estate Lobby won't let us. Soooo...let's tax the brains out of people that smoke and drink cuz it's a "sin." What about taxing the 800 calorie Burger King Burger and the gazillion fat-gram fries...that help create obese people who get diabetes and end up costing medicare/caid lots of $$$? (Go to a nursing home sometime and count the number of diabetic amputees)

I'm being a bit facetious...but instead of "raising taxes" why don't we hold our state and local elected representative's feet to the fire. For example I saw a car recently with a NC DOT tag. Guess what... it was newer Mercedes Benz wagon/SUV. What's that all about?

What about the $400K the state gave to the Sparta NC "Teapot Museum."

What about the road crews I see with three guy leaning against a pickup truck jack-jawing while one guy works?

What about the property (tax) re-evaluations that were sped up when real estate values were skyrocketing....but not now that values have fallen dramatically? What about the New Hanover County Manager that included exempt properties in the tax roll...and when later corrected caused a multi-million revenue shortfall...and the manager got a pay RAISE!

What about the Public Utility Board that can't read the water meters on time...resulting in meter readings that, on a progressive usage scale, ding the user for the governments inefficiency.

I'm all for worthy causes and want to do my part. I also am damned tired of watching our tax dollars being pee'd down a rat hole....and tired of legislators who keep passing the buck to the ordinary citizens that don't have a lobbyist with a fist-full of dollars to contribute to their re-election campaign.

Stan Bozarth

Some good some bad

A lot of the money that goes to business in the form of investments is just taxes that aren't being collected. I agree we should close those loopholes, as they cost more than they are worth. But, a lot of those are also 10 to 30 years of taxes.

I would absolutely support the idea of dropping mandatory minimums, especially for non-violent offenders. It would save a good chunk of change, and it is exactly the type of action that would require some real political courage.

A lot of the issues you raise are local issues, though, so wouldn't help the state deficit. As for the nice car, legislators get a salary of about $14,000. They get up to about 20-30 thousand extra in per diem and travel expenses potentially in a long year like this, and more if they are in the leadership. But no one is getting rich because of this job. There are just plenty of folks who had to be rich to get the job.

"Keep the Faith"

You're either missing the point or ignoring the broader

implications.

"Sin Tax" For example, what's fair about having a small segment of the population pay for SCHIP? In my mind, a much larger sin is driving with a cell phone stuck in one's ear.

The "local" issues mentioned are not endemic. There is waste and inefficiency and bloat thru-out the government. It doesn't get addressed because the legislators always threaten to cut programs that people hold close rather than going after some of the real culprits. We're paying thru the nose for stuff like Easely's wife's exhorbitantly compensated new job....and their trips to Europe. When does this stuff get cut from the budget? When you add up all these kinds of items the sum is huge.

One more time...The only time we're gonna get "political courage" is when we the people start to stand up and demand accountability and force our elected officials to do their job.

I'm tightening my belt. No one is coming to my rescue if I have a budget shortfall. Let's stop talking about more taxes until after we've demanded accountability and change....received it...and there's no place else to turn.

Stan Bozarth

For the most part,

our legislators do their jobs, and do them well. Yes, there's some backroom stuff going on, with the occasional boondoggle like the teapot museum or the road/bridge to nowhere. But those things are also learning experiences, and the public exposure of them has forced the legislature to be more critical when funding projects. And it's real easy to get mad about Mary Easley's salary or the three guys watching the one guy dig, and conclude, "That's why we're in this mess!"

The fact is, we're in this mess because of the economy. And the economy is screwed up not because of government waste, but because of free-market financial behavior and out-of-control housing development. These anti-tax and anti-planning folks you've been apparently reading won't be publishing the truth anytime soon, which is: they own a big part of the mess we're in.

In order to weather this storm we're going to have to cut spending and tax more. Relying on either one too heavily will push us in the wrong direction. But we need to make sure that neither of these moves are counterproductive and worsen the economy. For every job we cut, we add someone to the state's unemployment compensation burden, so we need to be real damned careful how we go about cutting, or we'll end up needing to cut more. We need to be just as careful about taxing, because we don't want to hurt retail sales or force business to cut workers.

Well said

In order to weather this storm we're going to have to cut spending and tax more. Relying on either one too heavily will push us in the wrong direction. But we need to make sure that neither of these moves are counterproductive and worsen the economy. For every job we cut, we add someone to the state's unemployment compensation burden, so we need to be real damned careful how we go about cutting, or we'll end up needing to cut more. We need to be just as careful about taxing, because we don't want to hurt retail sales or force business to cut workers.

The part about cuts creating cuts is absolutely true. If we start laying off workers those folks are going to immediately go into unemployment, their families are going to have an even tougher time paying the bills, putting even more of a burden on our budget. Doesn't it make a lot more sense to keep them employed, providing for their families, and paying taxes while finding other ways to cut excessive spending.

"Keep the Faith"

It does make more sense,

but it must be approached creatively. In other words, if you cut out some projects from one division, you're also reducing the administrative needs for that division, and keeping the full staff is not efficient. You've got 5 people doing the work of four, yada yada. Which leads me back to something I mentioned in a previous blog, when I still had a job. ;/

Cross-training and cross-utilization provide for an unbelievable efficiency tool. If you look at state government as a corporation, as opposed to a grouping of separate and unique departments/divisions which are only nominally joined together on the Governor's chain-of-command structure, it will help you understand what I'm thinking about. Instead of laying off that one person above who has become redundant, you put them to work somewhere else that has a need.

As an example: right now, it appears that the Department of Corrections is seriously understaffed. Probation officers have caseloads that are probably 1 1/2-2 times larger than they should be. Which also means their administrative (data management) burden is bigger than it should be as well. So, you temporarily reassign that extra person (even from another division) to absorb some of that data management work, giving the probation officers more time to keep an eye on probationers. Which cuts down on recidivism, which saves taxpayers money, etc.

Like I said, you gotta be creative and adaptable.

I'll give you another

The Department of Labor does not have nearly enough inspectors. I am sure that there are other departments that have employees who could be retrained for those positions.

One thing I don't know is what the cost of those trainings would be. I assume that retraining a worker would be cheaper than hiring someone new, but does anyone know?

"Keep the Faith"

Quite the opposite

She has let positions which are funded by the federal government go unfilled, and has tied a hand behind the back of the inspectors we already have. I was just using it as an example of one department that folks could be shifted to instead of being fired.

"Keep the Faith"

It depends on the job, of course.

Which is why I focused my example on administration in general, and data management in particular. Those labor inspectors you're talking about also must devote x hours per week to data management processes. While the data accumulated is different and requires a special skill set, the actual filing of paperwork and updating of the database itself would (probably) only take a few weeks to learn.

You can't take a clerk and turn him/her into a hydrologist this way, but you can turn them into a hydroclerk. I just made that job up, but it sounds way cool. :o

I beg your pardon? I didn't conclude anything of the kind.

I simply said these things are a big part of the problem and and a tax increase, unless governmental bloat is fixed, isn't the first and most necessary step towards fixing a budget shortfall. It is the easiest fix and requires no real effort on the part of government. Lots of hand-wringing and whining and sniveling about how badly they hate to do it...but...you and I are the ones that will pay.

I don't know who you think I might be "reading" in order to arrive at my conclusions. So, let's talk facts. Our economy is in the toilet for a number of reasons. Among them...

1. The "free market" Conservatives all seem to love hasn't been a free market for years. It has been a manipulated market...facilitated and embraced by our elected representatives. NAFTA was the beginning of the end of the Manufacturing Industry in America...and the results of the loss of jobs and balance of trade ensuing from NAFTA and the other "Free Trade" deals since is a key component in our current problems. The Financial Industry has been screwing consumers for years...usurious interest rates, influencing bankruptcy laws to their own advantage, the unregulated creation and sale of worthless derivative debt instruments...and so on. All with the concurrence of our government. Since @ 2003 our government has increased deficit spending about $500 Billion a year. If we don't have enough money to pay for all the programs we like, one reason might be the annual interest we have to pay to the holders of this debt is IMMENSE.

2. Waste. Take time to read some of the funding we've provided to the NIH. Lot's of money to study the sexual habits of transgendered native americans...or the sexual habits of eskimos. The list is endless with huge $$ involved. Watch the Obama signing this AM? How many ($155- $400)Montblanc pens did he use? I support Obama with every fibre...but this is bloated.

You're worried about unemployment benefits. I'm worried about being taxed out of my home. How is it that I'm supposed to pay for everyone's problems and in the process take the shaft too. I want to do my part. I want government to do it's part. Government CAN fix many of the problems they've allowed to be created and perpetuated. We just have to make them do it.

Stan Bozarth

I know, I know, the "Free Market" doesn't exist,

and never has. I'm talking about attempts to move towards a free market, like the repeal of Glass-Steagall and other deregulatory approaches. We have our own little movement here in North Carolina, and the main thrust of their attack is the promotion of the idea that state government is corrupt, wasteful and ineffective, which is why I made that comment about you reading them.

I'm worried about being taxed out of my home.

Again, I think you're taking a shot at the most visible target, instead of setting your sights on the real culprits. Generally speaking, your equity grows at a rate that allows your net worth to surpass the property taxes you pay on your home. I know you're talking about all taxes, not just property. And I also know that net worth rarely comes into play when you're balancing your checkbook. But property values are directly tied to many of the things your taxes pay for, like available municipal services such as water & sewer, fire & police departments, schools, etc. And they also (can) have a positive impact on your homeowner's insurance rates.

But now, thanks to plummeting property values, that formula has been scrambled. Not because of taxes, but because of financial industry mismanagement. Yes, there is too much waste in government programs, and yes, our elected officials need to be a lot more responsible. But overall, paying taxes should not be viewed as "pissing away" money, or a drain on our (individual) net worth. Whatever prosperity we have came about because of the taxes we paid, not in spite of them.