Setting the Record Straight

The Playing Field Isn’t Level Yet

By Rob Schofield

Last year’s lobbying and ethics reform legislation touched on a number of important subjects – gifts to public officials; campaign contributions from lobbyists; registration, reporting and disclosure laws; the lawmaker-to-lobbyist revolving door, and many others. Though flawed and in need of further improvements, the law was and is an important step for North Carolina. It showed that state lawmakers were willing to address at least some of the worst forms of overt corruption and to drain part of the swamp from which the Jim Black scandal arose. The new law also helped launch the speakership of an honest and no nonsense reformer, Joe Hackney. The culture on Jones Street is definitely healthier. 

For all of its important improvements, however, the ultimate objective of lobbying reform – to produce something akin to a “level playing field” for the many and varied interest groups that compete in state policy circles – remains illusive. Though lobbyist-funded wining and dining has ebbed significantly in Raleigh, powerful, moneyed interests continue to enjoy an enormous advantage in the state policy debates. The combination of PAC campaign contributions, huge P.R. expenditures, and a tangled web of connections between the lobbyists for large corporations and the state’s political establishment still leaves nonprofit public interest groups at an enormous disadvantage when it gets down to the business of passing and defeating legislation.

Several ongoing debates in the General Assembly remind of this hard reality. From larger “macro” issues like taxes and spending to a number of substantive topics, big money continues to drive much of the agenda in the state Legislative Building.

Tax Cuts for the Rich?

One of the central debates confronting lawmakers in the current negotiations over a 2007-’09 state budget is the question of whether to “sunset” a “temporary” income tax rate that was placed on upper income taxpayers during the budget crisis of 2001. Right now, couples earning over $200,000 per year pay a state income tax rate that is one-quarter of a percentage point higher than anyone else.

Even with this rate, however, wealthy taxpayers pay a much lower overall percentage of their incomes (incomes that are rising much faster than those of any other group) in state and local taxes combined than the middle class or the poor. Moreover there is no statistical evidence to show that wealthy taxpayers (or the businesses that some of them head) are abandoning North Carolina because of this modest quarter-point. To the contrary, North Carolina is bursting at the seams in many places with new and relocating businesses and individuals. Upscale suburban neighborhoods chock-full of McMansions continue to sprout like weeds.

Given such a reality (and the state’s glaring need for revenue to meet the expanding demand for essential public services), it’s hard to fathom why lawmakers would even consider cutting this tax. Nonetheless, as House and Senate conferees enter their second week of negotiations on this year’s budget bill, the quarter percent tax on the rich is one of the principal bones of contention. The House wants to keep it and the Senate wants to eliminate it.

What could be driving a Democratic-controlled Senate to stake out and stick to such a regressive position?  Clearly, there is no grassroots movement amongst rank and file Democratic voters to cut the tax on the wealthy. Though some Senate leaders (and Republican leaders in both houses) attempt to cloak the cut as a move to attract wealthy citizens who will fuel economic development, there are no data to support such an argument. (Even if there were, one must ask whether such people non-public spirited people are the ones the state wants to attract anyway).

The real explanation for the Senate’s tax cut on the wealthy, of course, is the disproportionate influence enjoyed by moneyed interests – powerful individuals and corporations who have developed quiet connections with powerful lawmakers – many of whom are their friends and peers. These groups and individuals seldom speak in public or mobilize voters. Their approach is mostly behind-the-scenes, but enormously effective. At present, they stand a good chance of success.

Corporate Masters

It’s not hard to find other examples of powerful, moneyed insiders working mostly out of the public eye to advance special interest causes in this year’s General Assembly. Among the prime examples:

The Cable Telecommunications Industry – This Wednesday, the House Public Utilities Committee gave approval to a bill that was advanced by one of the nation’s most unpopular industries – the enormously wealthy and powerful cable business. Under the so-called “Local Government Fair Competition Act,” local governments would be, effectively, prohibited from establishing low-cost, high-quality Internet service to their residents. Broadband service is, of course, something that is fast becoming a basic public necessity – just like water, gas or electricity. The bill was approved over the vociferous objections of the League of Municipalities, the Association of County Commissioners and consumer advocates at groups like NC PIRG and the NC Justice Center.

The Health Insurance Lobby – One of the most noteworthy examples of moneyed, special interests trumping the common good this session thus far is, of course, in the “debate” over mental health and substance abuse parity legislation. Despite the demonstrated benefits (and modest costs) that would inure to tens of thousands of people throughout the state if health insurers were required to cover mental illness and chemical dependency, powerful health insurers like Blue Cross/Blue Shield have (thus far, anyway) succeeded in slowing and weakening the proposed legislation dramatically. It will be interesting to see if anything of significance remains of the proposal after it is reviewed by a Senate committee this coming week. Despite it huge role in the debate, Blue Cross has yet to testify or speak publicly about the proposal in any detail. 

Big Multi-State Corporations – As reported earlier this week, large multi-state corporations are working quietly behind the scenes to defeat a proposal that would add North Carolina to a growing list of states that require “combined” or “honest” reporting of corporate income. At present, large corporations employ a variety of shell game tactics to “attribute” profits earned in North Carolina to affiliates and subsidiaries in “tax haven” states like Nevada and Delaware so that they can avoid the North Carolina’s corporate income tax. Not only does this practice deprive the state of millions (perhaps hundreds of millions) of dollars per year, it places smaller, homegrown businesses at a distinct competitive disadvantage. Unfortunately, despite the support of Governor Easley and Revenue Secretary Tolson, comprehensive reform is running into strong, backroom opposition from major corporate players.      

Of course, not all big money interests are working behind the scenes. The N.C. Association of Realtors is pursuing an aggressive and expensive public campaign to torpedo any and all proposals that might have even the slightest chance of impacting their profits. Thus far, the group has spent hundreds of thousands of dollars on a multi-media and direct mail campaign that is dedicated to dissuading state lawmakers from adopting any form of a real estate transfer tax – even if it’s just giving counties the right to conduct local referenda on the idea.

In contrast to the other corporate players, the realtors have opted for an aggressive, even provocative, approach in which they, in essence, flaunt their wealth and political power and dare lawmakers to cross them. The main similarity that the campaign bears to the more subtle efforts of the other moneyed interest thus far is the result. To date, lawmakers have made little or no headway on the idea of advancing a transfer tax even though North Carolina’s current rate is among the lowest in the country and the state’s need for infrastructure (like schools, roads, affordable housing and other items directly related to growth) continues to explode.

Looking Ahead

The 2007 legislative session is far from over. Despite their evident power, none of the moneyed interests is unbeatable. For the most part, however, moneyed interests continue to hold positions of enormous power and influence. If North Carolinians had any doubt about the need for further reforms to build upon the success of last year’s lobbying and ethics reform, they must look no further than the present situation in Raleigh for confirmation.  

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This entry was posted on Friday, June 8th, 2007 at 4:07 pm and is filed under Setting the Record Straight. You can follow any responses to this entry through the RSS 2.0 feed.