The telling tax cut

By: - June 5, 2012 12:21 pm

The recent report in the News & Observer about the $336 million tax break for business owners passed by state lawmakers last year is one of the most telling stories about the current leadership of General Assembly since they assumed control after the 2010 election.

It’s not just that the massive cut came as lawmakers were firing teachers and teacher assistants, locking thousands of at-risk four-years out of pre-k programs, even cutting services for victims in the criminal justice system.

It’s because legislative leaders were either less than honest about the tax break, how much it would cost and who would receive it, or they simply didn’t want to know—and it’s hard to say which is worse.

The News & Observer story recounts how at the time both House Speaker Thom Tillis and Senate President Tem Phil Berger trumpeted the tax change as a break only for small businesses, a claim Tillis repeated to the paper recently.

The plan was to allow the owners of companies with up to $825,000 in annual revenue a break from paying taxes on their first $50,000 of income. But as the N&O reports, that cap was dropped as the tax break made its way through the legislative process and was not included in budget bill when it finally passed.

That meant that the break will not go to just small mom and pop operations, but more than 400,000 business and equity partners and as the paper detailed, they include the partners in some of the state’s biggest law firms and medical practices.

And the $336 million price tag is staggering, amounting to 20 percent of all the budget cuts made last year and more than enough to replace federal education funding that is expiring this year that has allowed roughly 5,000 teachers to keep their jobs.

That massive price tag didn’t come up during last year’s legislative debate. You’d think lawmakers would want to know how much something cost before they passed it.

And as for the claims that legislative leaders didn’t realize that wealthy lawyers and other professional would receive the tax break—that is simply absurd.

Democratic Senator Dan Clodfelter, a partner at a prominent Charlotte law firm, pointed out in the debate on the Senate floor that he and other partners at his firm would receive the break the way the legislation was written.

Clodfelter made the remarks in his efforts to convince his fellow Senators to rethink the tax windfall, especially at a time they were making deep cuts to education and human services.

Senate President Pro Tem Phil Berger runs the Senate and surely heard Clodfelter’s remarks that he would receive the tax break too.

It must have not bothered Berger too much. He and his Republican colleagues plowed on and the tax break is now on the books and the state is facing a loss of $336 million while public school students sit in overcrowded classes using out of date textbooks.

Maybe more bizarre is that Berger’s Republican colleague, Sen. Bob Rucho, admits he knows that the tax break will go to wealthy lawyers as well as small businesses and he doesn’t care.

In fact, he’s happy about it, and misrepresents a UNC study to claim it will create jobs.

Apparently we are supposed to believe that Berger didn’t understand the tax cut as well as Rucho, who answers to Berger in the Republican hierarchy in the Senate.

The bottom is line is that legislative leaders misled the public about a major change in the state’s tax code that will cost the state $336 million as schools and human services are reeling from budget cuts.

And they are still misleading the public today. Their only defense is that they didn’t understand what they enacted and that they didn’t bother to ask how much it would cost.

Please. They knew. They just didn’t want us to know.

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Chris Fitzsimon

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina. [email protected] 919-861-2066