Friday, July 3, 2009

Loopholes, Big PACs, and the North Carolina Budget Debate

Loopholes, Big PACs, and the Budget Debate

By Bob Hall

Legislators in Raleigh are struggling to piece together a budget for a state with a lot less income to spend. Cuts for vital programs are definite. But what about cuts to the tax breaks that reduce income and benefit wealthy special interests who happen to be major political donors?

The program to provide uninsured children with health care will be cut back, but what about the unusual tax credit insurance companies get in North Carolina that 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 teacher assistants, but what about cutting the $12 million annual subsidy that primarily benefits wealthy athletic boosters at the universities?

Many legislators are promoting an approach to handling the budget crisis that incorporates basic principles of fairness, but they face opposition from colleagues who listen most closely to wealthy business groups with well-funded lobbies and political action committees (PACs).

At Democracy North Carolina, we recently connected the dots between the big PACs and tax breaks that the NC Department of Revenue says are valued at more than $1 billion a year. (See the report at

Here are just a few examples:

● “Athletic Supporters”: A group of UNC-Chapel Hill boosters called Citizens for Higher Education set a record for PAC donations to legislative candidates by handing out $479,000 during the 2008 election. It backs a controversial subsidy that means taxpayers finance out-of-state athletic tuition costs that athletic boosters formerly paid. The state House eliminated this subsidy (worth over $12 million a year) in its budget proposal, but the Senate did not.

● Big Insurance: Two insurance companies have sizeable PACs – the Blue Cross & Blue Shield PAC (giving a total of $171,250 in 2008) and Nationwide PAC (total - $226,500). Budget proposals increase the regulatory fee on insurance firms, but caps on taxing the companies’ revenue may still save them more than $150 million a year. The Senate proposal eliminated 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 continues to lobby legislators against Gov. Beverly Perdue’s proposal for a substantial 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 many exemptions from regulations, as well as a host of tax breaks. A proposal to reduce one break for the biggest farms – the cap on the sales tax paid on purchases of farm equipment and supplies – could generate over $100 million in new revenue.

● Telephone giants: 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.

● Mega Corporations: The big banks (four banking PACs contributed $704,300 in 2008), drug makers like GlaxoSmithKline, tobacco firms, and other multi-state corporations would 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 this proposal, which the House adopted but Senate leaders oppose.

● The Super Rich: At a time when so many are suffering, simple fairness means individuals who still make more than $250,000 (after deductions) should pay a higher tax rate. Both the House and Senate have ideas for a more progressive income tax structure, but how truly progressive the final plan will be remains a question. The rich have plenty of PACs speaking for them, but what about the ordinary citizen?

The test of the balanced budget this year will be how fairly it distributes the pain of spending cuts and how well it ends the loopholes and favoritism built into the tax system over decades by special-interest lobbies.

Bob Hall is executive director of Democracy North Carolina, a nonpartisan research and advocacy center for campaign finance reform and voting rights.

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