Fitzsimon File

There’s nothing at the General Assembly quite like the scramble to pass a budget before the end of the fiscal year June 30^th.  It is unpredictable and hard enough to follow in a typical year.

The unprecedented budget crisis and the uncertainty about how to keep government operating past June 30 if a budget doesn’t pass have made things even more chaotic this session.

House and Senate leaders continue to meet largely behind closed doors, rumors of a new $900 million Senate tax package coming next week continue to swirl, and lawmakers are still considering Governor Beverly Perdue’s call to raise $1.5 billion in new taxes to avoid deep cuts to education.

The demonstrations against specific budget cuts continue, as do two different forms of protests about proposed tax increases. The market fundamentalist think tanks continue their disingenuous claims that lawmakers can balance the budget with cuts alone and not serious damage education and human services, a view also held by most legislative Republicans, at least publicly.

They say many of the proposed budget cuts go too far, but don’t support raising any revenue to avoid them. That’s one of the few advantages of being in the minority. You can have it both ways.

The other groups opposed to many of the tax hikes that have been suggested are interests who don’t have a philosophical problem with raising taxes, as long as the increases don’t affect them. The liquor industry has taken out full page newspaper ads against raising the alcohol tax. Hospitals have mobilized against capping their refunds of state sales tax.

Parts of the business community are taking the self-interest crusade a step further, fighting efforts in the House and Senate to make them pay their share of taxes by closing loopholes that certain companies have enjoyed for years.

The House plan would close a loophole that allows multistate corporations to move profits around among subsidiaries to avoid state taxes. More than half the states in the country have already closed this loophole.

The Chairman of the North Carolina Chamber wrote in an op-ed in the News & Observer Thursday saying that the change, called combined reporting, “would force major employers operating in additional states to potentially pay taxes on income not attributable to North Carolina…”

Not exactly. The Center on Budget and Policy Priorities says that combined reporting requires the corporations to pay taxes based on their level of activity in the state as compared to their operations in other states.

In other words, companies are required to pay the state taxes they owe on profits they make in the state.  Multinational corporations paying their taxes like businesses that operate only in North Carolina.  It doesn’t seem like such a radical concept.

Neither does asking banks to pay taxes at the same rate as other businesses. They don’t now, thanks to a change in the law more than 30 years ago that allows banks to deduct the interest they pay to customers and then invest it in tax-exempt securities. The double dipping is not allowed at the federal level and for years Arkansas was the only other state that allowed it.

The loophole has cost the state hundreds of millions of dollars. The House tax package would end it. Bank lobbyists have defended the tax break for years, at one point calling advocates for its repeal members of the flat earth society. Apparently tax fairness is only allowed on a different sort of planet.

The last public version of the Senate tax plan would repeal several tax credits and exemptions for specific industries and economic development schemes. It all adds up to a potentially fairer business tax code. Or it did until recently when lawmakers voted to give Apple Computer a special break and to increase the tax credit for film companies that shoot movies in the state.

The justification for those tax breaks was that they would create jobs, the same basic argument that lobbyists for the banks and the multinational corporations at the N.C. Chamber make about their preferential treatment.

The logic is deeply flawed. Where do the loopholes end? Why not eliminate all taxes on all fast food restaurants or bottling companies to save or create jobs?  The state could give enough money to companies in one industry forever to ensure that they never pay a dime in taxes. That might create jobs too.

Here’s a better idea. Make sure that any revenue package that raises taxes on average North Carolinians makes banks and multinational corporations pay the taxes they really owe. It seems like the least they could do.

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This entry was posted on Thursday, June 18th, 2009 at 4:43 pm and is filed under Fitzsimon File. You can follow any responses to this entry through the RSS 2.0 feed.