Protect us from the 'Protection Act'

By Steve Ford, Volunteer Program Association,NC Council of Churches, NC Policy Watch, August 17, 2015.

With its misguided “Taxpayer Protection Act” scheme, the state Senate looks to put a crowning touch on its efforts to turn North Carolina into a veritable Promised Land for conservatives, where taxes are always low, the government is always small, and public services are always below average.

Will enough members of the House muster the courage to stop the madness?

Senate Bill 607,  given final Senate approval on Aug. 12, would cap the state’s individual income tax rate at 5 percent – well below where it’s been in recent decades.

It also would limit growth in state spending so that it tracks with population increases and price inflation. So, with recent budgets already put through a wringer by the Republican-controlled legislature amid revenue shortages, some of them self-inflicted, the state would be hindered in making up lost ground as the economy recovers.

When they’re writing laws, legislators normally must bear in mind that their decisions can be reviewed and modified by their successors.

But the Taxpayer Protection Act would evade that reasonable safeguard by hammering its rules into the state constitution, if approved by voters in a referendum to be held in the November 2016 general election.

That would awkwardly tie the hands of legislators from now on unless hard-to-achieve two-thirds majorities in both the Senate and House voted to make exceptions to the rules. Or, of course, unless the constitutional language were overridden in another referendum – not a simple process.

Priorities in play

Let’s stipulate that in any well-run state, income taxes cannot become so onerous that they discourage people from trying to make money. After all, people working hard to reach a higher standard of living, to provide for their kids’ education, to ensure a comfortable retirement are essential to our society’s health and prosperity.

Similarly, a government cannot be allowed to waste money on ineffective, redundant or unneeded services and programs. Good managers will weed out such programs relentlessly.

But a whole calculus of values and priorities goes into these kinds of judgments. To take one current example: Are teachers assistants in early elementary school classrooms so ineffective that they should be laid off by the thousands to finance class-size reductions? That’s what the Senate, in its proposed budget, would do.

It’s a decision driven in large part not only by skepticism about the assistants’ role but also by the high priority given to cutting taxes, supposedly to benefit business. Those cuts hold down revenues that could have financed both the assistants’ jobs and the smaller class sizes.

With the Taxpayer Protection Act embedded in the constitution, future legislators would find it that much harder to make what many North Carolinians would say is a logical policy choice: keep the assistants and make classes smaller, if the evidence is so compelling that young children do better with more individual attention.

S.B. 607 as filed in March would have amended the constitution to require two-thirds majorities in the legislature for income taxes to be raised.

The plot thickened as the bill moved through Senate committees. By the time it cleared the Finance panel on Aug. 6, it called for three separate ballot questions on changes to the constitution: 1) the income tax ceiling, 2) the spending limits, and 3) mandatory contributions to the “Rainy Day” emergency fund, with tighter rules for withdrawals from the fund.

The three questions then were rolled into one, allowing voters just a single vote on the three bundled changes. The sponsors evidently didn’t want to let people decide the merits of each individual amendment. Voters might decide they liked the Rainy Day fund provisions, for example, but not the others.

Debating on the Senate floor, Democratic Sen. Dan Blue of Raleigh, the minority leader, called the Taxpayer Protection Act a budget gimmick that would hobble future legislatures and impede worthy investments in the state’s well-being. Certainly overall population growth is a crude measure by which to gauge the state’s true needs. For instance, what if there’s a spike in the ranks of the elderly, as seems inevitable?

The chamber’s Democrats were solid in opposition. But in the vote on final passage, Republicans were just as solid in support. The tally was 31-14, one more than the three-fifths margin required to put a constitutional amendment on the ballot. Three Republican senators were absent and two Democrats.

Revenue risks

When the bill reaches the House, opponents can be expected to cite State Treasurer Janet Cowell’s forecast that the package of amendments would result in a lowering of the state’s credit rating – a natural outcome when revenue-raising authority is curtailed, and a costly one because it pushes up the costs of borrowing.

The experience of Colorado also is relevant. There, a spending cap built into the constitution was suspended for a time by voters after it forced intolerable cutbacks in a range of services while yielding no clear benefits to the state’s economy. With the cap in effect, the state’s ranking on measures such as per-capita education outlays has sunk toward the bottom.

Republican control in the 120-member House is somewhat narrower than in the Senate, with 76 members of the GOP caucus. It will take 72 votes to approve the bill – possibly a close call.

It was telling that Republican Rep. Jason Saine of Lincolnton, co-chair of the House Finance Committee, told reporters the bill won’t even be considered until major disagreements over the pending budget are resolved. No wonder: The budget was supposed to be nailed down by July 1, and the delay has pitched school systems and other agencies into a void of uncertainty.

The Republicans who have been in complete control of state policy-making since 2013 already have cut the individual income tax, now set at a flat 5.75 percent. The Senate’s proposed budget includes a further cut to 5.5 percent – a sufficient revenue threat to cause Republican Gov. Pat McCrory to say he’d rather see the rate remain where it is for now.

Dropping the tax to a flat 5 percent beginning in 2020 would mean a truly massive revenue loss, in the many hundreds of millions, with much of the benefit flowing to higher-end earners. To make up at least some of the difference, it’s likely that sales and property taxes would be increased – taxes that tend to fall more heavily, in a relative sense, on the middle class and the poor than on the well-off. To those of us concerned about tax equity, such shifts would go in the wrong direction entirely.

McCrory can veto a budget bill or a bill to change tax rates. But once a proposed constitutional amendment has gotten through both legislative chambers, it goes on the ballot without the governor having a say.

At least, he doesn’t have a say with his veto stamp. What McCrory, as the state’s chief executive, could do is help explain why the Taxpayer Protection Act really doesn’t offer any protection at all from a decline in the government’s ability to do its proper job on behalf of each and every resident.

That would show a level of independent leadership and a sense of stewardship that North Carolinians have a right to expect from their governor. Those of us at the Council of Churches hope he rises to the challenge.

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