Let the fireworks begin, North Carolina legislators missed the deadline to pass a new state budget, so they went home for the July 4th holiday.  They now have until the 15th of July to decide which programs face the chopping block. But don’t let the budget tango they are preforming  in Raleigh mislead you. Legislators’ know exactly where cuts to balance the budget could and should be made, it’s just those cuts aren’t on the table. Why? Our legislators’ don’t want to bite the hands that feed them, literally. Here’s two examples that boggle the mind.

The program to provide uninsured children with health care will be cut back, but what about the unusual tax credit North Carolina gives insurance companies, which reduces their tax bill by $20 million a year, a hole the rest of us have to fill?

Students (and their parents) will suffer because of cuts in funding for teacher assistants, but what about cutting the $12 million annual subsidy that primarily benefits wealthy athletic boosters at the universities?

 “A hole the rest of us have to fill?” seems to be the common theme when you consider the special-interest loopholes in the proposed state budget and a recent analysis  by Democracy North Carolina puts the numbers in black and white.  

The analysis by the watchdog group Democracy North Carolina shows that legislative winners in 2008 received 94 percent of the $5.7 million the big PACs donated to all legislative candidates. The PACs also gave $770,000 to gubernatorial and other statewide candidates, as well as $590,000 to political party committees, much of which gets funneled into legislative races. On September 16, 2008 the NC Realtors Association PAC sent 106 legislative candidates a total of $169,500 in donations. The same day, the NC Telephone Cooperative’s PAC sent $66,800 to 75 legislators. The next day, the Blue Cross PAC sent $42,200 to 45 candidates and two weeks later, Bank of America’s PAC gave 84 legislative candidates $118,250. And on and on it went.

The list of top PACs includes groups of developers, attorneys, university patrons, doctors, auto dealers, state employees, teachers, and beer wholesalers, as well as executives with blue-chip firms like Progress Energy, Wachovia, Blue Cross, AT&T, and Nationwide Insurance.

The analysis by the watchdog group Democracy North Carolina shows that legislative winners in 2008 received 94 percent of the $5.7 million the big PACs donated to all legislative candidates. The PACs also gave $770,000 to gubernatorial and other statewide candidates, as well as $590,000 to political party committees, much of which gets funneled into legislative races. On September 16, 2008 the NC Realtors Association PAC sent 106 legislative candidates a total of $169,500 in donations. The same day, the NC Telephone Cooperative’s PAC sent $66,800 to 75 legislators. The next day, the Blue Cross PAC sent $42,200 to 45 candidates and two weeks later, Bank of America’s PAC gave 84 legislative candidates $118,250. And on and on it went.

Thanks to our legislators, our state’s tax code is packed full of these “special provisions and loopholes” that benefit these PAC’s and the loss of state revenue due to this “favoritism” is worth $1 Billion according to Democracy North Carolina. Here are some examples from their report:

  •   “Athletic Supporters”: A group of UNC-Chapel Hill boosters called Citizens for Higher Education (CHE) set a record for PAC donations to legislative candidates by giving $479,000 to this group during the 2008 election. It handed out at least $3,000 to 80 legislators, including the maximum $8,000 to 24 legislators. No PAC in history has thrown such large amounts to so many legislators. CHE supports a controversial tuition subsidy for out-of-state students, mostly athletes; the subsidy shifts costs to taxpayers that were formerly paid by athletic boosters. The House eliminated the subsidy, worth over $12 million a year, but the Senate’s budget did not.
  •  Bankers: Four banks are on the list of the top PACs: Bank of America (total donations – $292,750), Wachovia (total – $181,700), BB&T ($135,250), and First Citizens ($94,651). The House eliminated a tax break that once saved banks more than $80 million a year. The loophole allows banks to lower their taxable income by deducting the expenses associated with investments that are tax exempt, a practice the federal government does not allow.
  •  Beer/Wine: While Gov. Beverly Perdue proposed increasing the tax on beer, wine and liquor, the House only focused on liquor. The NC Beer and Wine Wholesalers Association PAC gave a total of $145,517 in 2008, and it has beaten back increases in beer taxes before. Many beer wholesalers are prominent individual donors – as are members of the next group.
  • Auto Dealers: The NC Automobile Dealers Association PAC donated $218,000 and can boast that none of the budgets raise the 3% tax limit on auto sales. A one percent increase in the motor vehicles use tax would generate more than $150 million a year. Auto dealers also benefit from how the tax is calculated, because the value of a trade-in is deducted from the new vehicle sales price before figuring the tax. This provision lowers the vehicle tax by $110 million a year.
  •  Service Providers: The new budget may require car mechanics and house painters to collect a sales tax on what they charge their customers. But, so far, attorneys, accountants, architects, and other service providers who are disproportionately used by the wealthy appear to be exempt from the discussion about which new services should be taxed. That’s especially a windfall for members of the NC Academy of Trial Lawyers (now NC Advocates for Justice), which sponsors the PAC with the most political donations in NC. It gave a total of $607,000 in the 2008 election, including $308,000 to legislative candidates and a whopping $251,500 to party committees.
  •  The Well-Off: On the other hand, wealthy lawyers would be captured by a House plan to add two new tax rates for individuals with taxable income (after deductions) above $200,000 and above $500,000. Other groups with wealthy members and big lobbies include the NC Medical Society (total – $484,562), the NC Association of Realtors (total direct donations – $290,000) and the NC Home Builders Association (total – $324,200). Three PACs of anesthesiologists donated a total of $283,000. The Senate has a different approach to achieve a more progressive income tax system, especially related to the state’s highest earners; the resolution of the two approaches is one important area to watch in the budget negotiations.
  •  Big Insurance: Two insurance company PACs are among the state’s largest – the Blue Cross and Blue Shield PAC (total – $171,250) and Nationwide PAC (total – $226,500). Budget proposals call for increasing the current regulatory fee on insurance firms, but other caps on the taxable portion of premiums collected by insurers may still save the companies more than $150 million a year. The Senate may finally end an unusual tax credit on what insurance firms pay into guaranty funds to protect against their failure, which saves them $20 million a year.
  •  Big Tobacco has lost some recent fights, but with the help of the R. J. Reynolds PAC (total – $88,000) and numerous lobbyists, it defeated a provision in an early version of the House plan to end a tax break worth $12 million a year for cigarette manufacturers, and it has apparently convinced legislators not to go along with Gov. Beverly Perdue’s proposal for a $1 increase on the excise tax on a pack of cigarettes.
  • Boss Hog: Thanks to the political clout of agribusiness, including the donations of the NC Farm Bureau PAC (total – $222,150) and NC Pork Council PAC (total – $187,000), agriculture gets all sorts of exemptions from land-use, environmental and other regulations, as well as a host of tax breaks. A proposal to reduce one of the oldest breaks – the $80 cap on the sales tax paid on purchases of farm equipment and supplies – could generate over $100 million in new revenue.
  • Utilities: Agribusiness, manufacturers, commercial businesses, and residential customers all get a break on the sales tax on electricity. State law limits the sales tax on electricity to between 1.8% and 3%, depending on the customer; lifting this cap would generate $130 million a year in new revenue and might reduce energy consumption. Progress Energy PAC (total – $301,500) and Duke Energy PAC (total – $278,000) are among the top 10 PACs in the state year after year.
  • Telephone companies: AT&T (PAC total – $140,500) and Embarq Corp. (PAC total – $151,250) are two of the firms that benefit from a tax break on the purchases of telephone equipment that costs the state an estimated $31 million a year in lost revenue.
  • Hospitals: One of the more surprising big PACs is financed by the executives and health practitioners affiliated with the NC Hospital Association, many of whom are also prolific individual donors to candidates. The PAC donated a total of $301,250 in 2008. A Senate proposal to limit the current refund on sales taxes paid by large non-profits, which would mostly affect hospitals, is being reconsidered, much to delight of this lobby group. Hospitals and doctors also are worried about reductions in the state’s reimbursement rate for Medicaid patients.
  • Mega Corporations: The big banks, telephone giants, drug makers like Glaxo, tobacco firms, and other multi-state corporations might have to pay an additional $45 million to $100 million in taxes to North Carolina if they were forced to report the income of their various subsidiaries through a method called “combined reporting.” But the NC Chamber and other groups are fighting the change to combined reporting, which the House adopted but Senate leaders oppose. Many multi-state corporations also benefit from the notorious “cookie factory tax break,” a change adopted by the General Assembly years ago to woo a Nabisco factory that still didn’t come; the change allows multi-state companies to reduce the portion of their income taxable in North Carolina and it now produces a $58 million annual tax loss for the state.

Clearly there is something fundamentally wrong with a system that rewards big business and industry at the peril of the less fortunate among us, such as social programs that benefit children, the disabled and the mentally ill.  Education and public safety also faces the ax at a time when the demand for these services are higher than ever in our state. Clearly our legislators have loss touch with their roots and the demands of the towns they grew up in and if this keeps up maybe it’s time we send them back. Literally.   

Visit Democracy North Carolina for more.

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