Jul. 16, 2001
Budget Marketing Reflects Campaign Giving
By J. Barlow Herget
RALEIGH - The betting here is that the General Assembly will not finish before mid-August. It’s budget time, and the legislators are deep into the details of deciding how the state will raise and spend the billions of dollars required to keep North Carolina working.
This is also that magic time in politics when campaign contributors and their lobbyists are like watchful cats, alert and prowling the legislative halls and purring over the phones. One line in the budget bill can wipe out a loophole that may be worth millions of dollars to their clients. Another line may stop a subsidy that supports a contributor’s pet project.
Legislators always have been expected to listen to their friends and supporters. That's how politics works in North Carolina and America. If teachers or farmers want a governor or legislator to be friendly to education or agriculture, the teachers and farmers work to get their respective candidates elected.
That dynamic continues, but in the past 25 years, the costs of campaigning have soared. Campaign spending for a typical seat in the North Carolina House, for example, went from $25,800 in 1994 to $69,000 in the 2000 Election. The average spending for a Senate seat went from $36,300 to a whopping $134,000!
Candidates today must listen more and more to the people and organizations who can finance the candidates’ campaigns. And guess what? These contributors also want someone to listen to them and to look out for their interests.
At budget time, these people work hard to be heard. A look at the current budget making is instructive, especially in a legislative session facing a budget shortfall of $800 million at the outset and declining revenues at mid-year.
For example, Gov. Mike Easley named the N.C. Efficiency and Loophole-Closing Commission earlier this year and it recommended in April that the state ends or studies a number of tax breaks for a variety of individuals, activities and businesses. One of the biennial favorites exempts North Carolina banks from paying income tax on certain federal securities but also allows banks to deduct the business expenses associated with those investments. To end the exemption would mean banks would pay over $20 million more in taxes.
Banks, understandably, want to keep their exemption, and they are among the most dependable campaign contributors. Combined, they give about $1 million per election to political candidates. Status: No action expected this year.
(By contrast, there is legislation to regulate the high interest rates and lending practices by a relatively new business in North Carolina, "payday lending." Payday lenders cater to poor people who can’t get credit elsewhere. Status: Some regulation is likely to be approved; look for the N.C. Check Cashers Association to increase campaign contributions next election.)
One easy-to-understand tax break is the one given to buyers of autos that cost more than $50,000. If you buy a car, for instance, you will pay a sales tax of 3 percent up to a maximum of $1,500. There is no sales tax on the amount above that figure, which is a tax break for those who can afford vehicles that cost more than $50,000. If this loophole were closed and luxury vehicle buyers paid 3 percent on the full price on their autos, the state would collect an extra $2.4 million. Auto dealers and their association have been steady campaign contributors over the years. Status: Recommended for study.
The Commission listed as No. 2 on its list the tax break for "amusements" such as movies, cable and satellite TV and live entertainment. State sales taxes on these items now vary, from three percent for live entertainment to zero tax on satellite TV and up to five percent in local franchise taxes for cable.
The state sales tax now is four percent and local governments add another two percent for a total of six percent. If the sales tax were equalized at six percent on all these items, the revenue would come to about $28.4 million. These businesses also are well represented in campaign contributions. Status: The Senate has recommended closing the loophole on cable and direct TV; no action in the House.
Politicians abhor raising taxes, but when forced to choose in recent years, in North Carolina they have adopted increases in the sales tax rather than the progressive income tax. The sales tax is less noticeable but more regressive which means it takes a bigger percentage bite out of the income of poor and middle income citizens than the wealthy.
One proposal for budget makers this year is for the legislature and governor to approve a one-time, one-year, one percent increase in the income tax rate. Such an increase is estimated to raise $1 billion by the non-profit, N.C. Budget and Tax Center here.
If you limit the increase just to the top five percent of taxpayers, the amount would be $310 million. But then, the bulk of campaign contributions comes from these people and their business interests. Status: This proposal is going nowhere.
Barlow Herget is a businessman, writer and served two terms on the Raleigh City Council.
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