Friday, June 21, 2013

North Carolina's Shadowland Teat Squawkers

If you want to see the difficulty in trying to implement tax reform and a decentralization of power, look at North Carolina.  I can’t even imagine trying this at the national level.  Every special interest group is fighting tooth and nail to keep the status quo.  If the states’ republicans aren’t successful at beating back the teat squawkers, at least the exercise has been insightful.

What surprised me is how powerful nonprofit organizations are in this state.  Hospitals, which have higher profit margins than Exxon, are complaining about the loss of revenue because the General Assembly refused to expand Medicaid.  They are also bitching about proposals that would eliminate exemptions from collecting sales taxes and subsequent refunds.  Yet, Carolina’s HealthCare System’s CEO’s 2012 compensation was $4.7 million, which included bonuses over $2 million.  And this is a nonprofit?

Another band of teat squawkers that operate under the radar are cities and townships.  To get a good idea of how involved the State is in funding everyday operations, here is an excerpt from the Charlotte Observer:

In the Senate plan, the biggest hit for the city in the tax bill would be the repeal of the privilege license tax that cities impose on certain businesses. The loss of this levy would cost between $17 million and $18 million a year when fully implemented.

The business privilege tax is levied on all businesses, trades and professions operating inside Mecklenburg County. The minimum tax is $50. The maximum is $10,000.

The city could also lose $15 million per year if it loses refunds on sales taxes that it pays to the state, plus an additional $10 million from the elimination of the local sales tax on food. The lost revenue would be partially offset by an additional $11 million in revenues from additional taxes that nonprofits such as hospitals would pay.

Berger spokeswoman Amy Auth said the Senate’s tax reform plan incorporated feedback from people across the state, including constituents, businesspeople, other legislators and the governor. In particular, a vast majority said the state should not tax food, she said.

Local governments have other options for raising money for local services and infrastructure, including impact fees, water fees and other local taxes, Auth said. Governments could make up for lost sales tax by reinstating the food tax, or they could reduce spending, she said.

As for privilege taxes, Auth called them a disincentive for business to move to and create jobs in North Carolina and noted municipalities will have five years to prepare for the change.

According to the League of Municipalities analysis, Charlotte would lose the largest amount of revenue in the state, but other communities would face steeper tax increases. The Edgecombe County town of Leggett, for example, would need to raise property tax bills by 849 percent to make up for $83,584 in lost revenue.

Among Charlotte-area communities, Monroe would take a $2.2 million hit, Gastonia would lose about $2 million and Mooresville would come up $1.1 million short.

Cities like Charlotte have been double dipping.  Besides imposing their own taxes, they use the state to confiscate wealth from their citizens through taxing services and items like food.  They then get the rebates, all the while scrubbing their hands of the dirty political process.  In the meantime, we have sprawling unaccountable bureaucracies that perform duplicate, and without a doubt, substandard service.

A famous Democrat once said all politics is local.  That’s the way taxation should be as well.  All forms of revenue should be transparent and the politicians of that community held accountable.  But as we’ve seen, it’s better to operate in the shadows.       

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