Fitzsimon File

The unexamined five billion dollar program

As state lawmakers try to decide what to cut to address the state’s massive budget shortfall, you would think that a program that costs $5.85 billion a year would be worth some attention, especially if its cost rose roughly 40 percent from 2005 to 2009.

But while budget subcommittees are considering firing teachers and abolishing programs for at-risk kids, no panel is spending any time looking at the $5.85 billion worth of tax expenditures the state makes every year.

It won’t require a lot of research. There’s a list readily available to lawmakers, complied every two years by the Department of Revenue. The 2005 report found that the expenditures cost the state $3.57 billion. The 2009 report came up with the $5.85 billion figure. That’s a $1.38 billion increase. Surely that’s worth a subcommittee meeting or two.

Rep. Johnathan Rhyne has filed a bill to set up another tax modernization commission that will report back to next year’s legislative session. That’s a fine idea. The tax code certainly needs to be modernized, as several commissions have recommended in recent years.

But the lawmakers are trying to balance the budget this year. Shouldn’t they spend as much time looking at why multistate corporations get a huge tax break as they do going line by line over the expenses at western office of the Governor?

The huge companies are allowed to shift the profits they make in North Carolina to other states to avoid paying the state taxes they owe, robbing the state treasury of revenue and punishing North Carolina-based companies who compete with the multistate corporations but have no place to hide their profits.

The Department of Revenue report defines tax expenditure very simply. It is “an exemption, exclusion, deduction, allowance, credit, refund, preferential tax rate or other device that reduces the amount of tax revenue which otherwise would be collected.”

There are literally hundreds of them, including sales tax exemptions for a farmer’s seeds and a corporation’s electricity. Individuals pay taxes on their utility charges. Many businesses don’t.

One tax expenditure that is beginning to get a little public attention is the break that tobacco distributors get if they file their reports and cigarette tax collections on time. Alcohol distributors also get a break for timely collections and reporting. There’s no break for citizens who file their taxes before the deadline of course.

There are 49 exemptions to the state corporate income tax alone that cost the state $300 million a year and that does not include the loophole for multistate companies. Insurance companies receive almost $200 million in tax breaks. Maybe there is a good reason for some of them. But there’s a good reason to have teachers in the classroom and mental health services available to families too.

Most budget subcommittees now meeting have before them options for cuts of 5, 10, and 15 percent. There is talk of even larger cuts to the university system.

Somebody needs to make a list of possible cuts to tax expenditures at the same levels. A five percent cut would raise almost $300 million, a ten percent cut almost $600 million.

Legislative leaders have said many times this session that everything is on the table as they decide how to balance the budget. That won’t be true until they get a subcommittee busy reviewing the Department of Revenue report.

 

Like this article?


Our work is supported by readers like you.

Help us to continue expanding our aggressive reporting and thoughtful commentaries. Make a tax-deductible financial contribution today!