Exhibits to the “State of the State Address” By: Representative Paul Stam House Majority Leader To: Association Executives of North CarolinaGovernment Affairs Symposium and February Membership Luncheon February 17, 2012 Sheraton Raleigh Hotel1. Actions on Legislative Recommendations from the Economic Development Advisory Group2. GOP Accomplishments: January 20123. General Assembly’s Actual Public Education K-12 Budget Compared with Governor Bev Perdue’s Proposal for 2011- 20124. Why Does Governor Propose Job Killing Tax Increase?5. Tax Modernization in North Carolina—One Step to Economic Growth and Fiscal Stability
ACTIONS ON LEGISLATIVE RECOMMENDATIONS FROM THE ECONOMIC DEVELOPMENT ADVISORY GROUP http://www.nchouserepublicanleader.com/Environmental Regulation: Identifying and relaxing specific, overly restrictive statutes and regulations. Res. 2011-2 (S 17) Joint Regulatory Reform Committee S.L. 2011-13 (S 22) APA Rules: Limit Additional Costs S.L. 2011-398 (5 781) Regulatory Reform Act of 2011 • Simplify and streamline Brownfield permit processes. S.L. 2011-186 (H 45) Accelerate Cleanup of Industrial Properties Allows risk-based remediation for the cleanup of industrial properties. • Improve coordination within DENR for multiple permit projects. S.L. 2011-145 (H 200) Appropriations Act of 2011, Item 95 on p. H-22 of the Committee Report requires DENR to have one Customer Service Liaison position at each of its seven Regional Offices to assist with customer service, which includes multiple-permit projects. • Review and revise swine poultry farm regulations. S.L. 2011-118(S 501/H 529) Swine House Renovations/Site IssueTaxes: • Sunset of 1-cent sales tax and individual and corporation income surtaxes. The sunset of these taxes provide $1 .3 billion in tax relief to taxpayers for FY 2011-12. A recent study by the Kenan-Flagler School of Business at UNC-Chapel Hill indicated that the elimination of the one percent sales tax will generate 11,723 private sector jobs. • Budget Items (H200) $50,000 personal income tax deduction for non-passive business income. The deduction provides tax relief to 450,000 business owners. Expiration of the personal income tax and corporate income surtax will mean as many as 2,113 more private sector jobs. Exempts reserves for amortization of intangible assets from surplus and undivided profits, excluding them from the franchise tax capital base. This allows amortization of intangible assets to be treated like depreciation of capital equipment, which is also excluded from the franchise tax base. —1—
Simplifies North Carolina’s tax form by beginning the calculation of state taxable income with federal Adjusted Gross Income (AGI) as opposed to federal taxable income. This eliminates confusing add-backs created by differences between the federal and state deductions and exemptions.• H124 Internal Revenue Code (IRC) Update — S.L. 2011-5 (H124) The IRC Update did not conform to federal bonus depreciation or Section 179 expensing. However, the law does conform to several other federal code provisions. Background: Estate tax. The federal estate tax expired for decedents dying in 2010. The estate tax had — been scheduled to reemerge in 2011 at the 2001 exclusion amount of $1 million and the maximum estate tax rate of 55%. The 2010 Tax Relief Act revived the federal estate tax retroactively to January 1, 2010, with an exclusion amount of $5 million (the portability provision effectively provides an exclusion amount of $10 million for married couples) and a maximum estate tax rate of 35%. The estate of a decedent dying in 2010 may elect not to pay estate tax, and receive a modified carryover basis in the property passing through the estate. The estate tax provisions are scheduled to return to the 2001 rates and exclusion amounts for decedents dying on or after January 1, 2013. H124 conforms North Carolina law to the higher exclusion amounts and gives estates that choose to pay federal estate tax and receive the stepped-up basis in the property passing through the estate to elect to receive the stepped-up basis for NC purposes by paying the State estate tax for 2010. 2010 Jobs Act The IRC Update conformed to several provisions of the 2010 Tax Relief — Act: An increased exclusion amount of the gain realized on qualified small business stock. The exclusion amount is increased from 50% to 75% for stock acquired after February 17, 2009, and before January 1, 2011, and held for more than five years. And there is an increased deduction limit for start-up expenses. 2001 Tax Relief Reconciliation Act The IRC Update also conformed to the 2010 Tax Relief Act, which extended many of the tax incentives enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 for two years. North Carolina conformed to these incentives in 2002; however, under prior North Carolina law, several of these incentives expired for the 2010 taxable year and many others are scheduled to expire for the 2011 taxable year. H124 conforms to the federal effective date extensions. The 2010 Tax Relief Act extended the Work Opportunity Tax Credit (WOTC) to include individuals who begin employment after August 31, 2011, and before January 1, 2012. North Carolina’s WOTC is equal to 6% of the federal WOTC for wages paid for positions located in this State. The federal WOTC was scheduled to expire September 1, 2011. The 2010 Tax Relief Act extended the following charitable incentives for taxable years 2010 and 2011: o Deduction for contributions of food inventory o Deduction for contributions by C corporations of books to public schools o Deduction for corporate contributions of computer equipment for educational purposes o Basis adjustment to stock of S corporations making charitable contributions of property -2-
The 2010 Tax Relief Act extended the following individual income tax incentives retroactively for the 2010 taxable year and the 2011 taxable year: o Tax deduction for higher education tuition expenses o Up to $250 deduction for teacher’s classroom expenses o Charitable contribution of IRA proceeds The following individual income tax incentives were scheduled to expire in 2011, but 2010 Tax Relief Act extends the incentives for the 2011 and 2012 taxable years: No limitation on itemized deductions. o Enhancements to the earned income tax credit (EITC). North Carolina’s EITC is equal to 5% of the federal credit amount. o Enhancements to the adoption tax credit. North Carolina’s adoption tax credit is equal to 50% of the federal credit amount. o Deductibility of mortgage insurance premiums. o Educational assistance exclusion. o Student loan interest deduction. o Increased amount that may be contributed to Coverdale education savings accounts and expansion of qualified expenses to include elementary and secondary school expenses. o Exclusion of scholarships received from the national Health Services Corps Scholarship Program and the Armed Forces Scholarship Program from income.Eliminate or reduce corporate income tax. HB 200 The Budget did not extend the sunset, effectively ending the 3 percent surcharge —rom 2009.Reform Unemployment Insurance Tax Structure Ch. SL 2011-10 Reform UI Tax Structure/Exredite Analysis 03/25/20 1 1H619 Forced Combinations as amended by SB580 — S.L. 2011-390 Forced CombinationsClarifying the rights of corporations when to have separately calculated state tax returns andeliminate the Secretary’s authority for forced combined reporting.S580 — S.L. 2011-411S580 clarifies the Secretary of Revenue’s authority to enter into settlement agreements under thenew statutory rules for requiring forced combinations. The clarification allows “voluntaryredeterminations” whereby the Secretary and a corporation may jointly agree to a reasonablealternative tax filing methodology that accurately reflects the company’s state taxable income. Theeffective date of the new statutory rules for forced combinations is effective for taxable years on orafter January 1, 2012.Insurance Costs: • Revisions of several workers compensation statutes to eliminate lifetime rights to full or partial disability, and limit such disabilities to 400 weeks of compensation; and to eliminate psychological illnesses as a compensable illness. S.L. 2011-287 Protect and Put NC Back to Work Implement tort reform to limit jury verdicts. S.L. 2011-283 Tort Reform for Citizens and Businesses S.L. 2011-400 Medical Practice Reform -3-
Transportation: • H200 (the Budget) includes $400,000 in recurring funds for Short Line Infrastructure Assistance Grant Program.Education: S166 (S.L.201 1-327) establishes the “No Adult Left Behind” initiative to increase the accessibility of evening and certificate programs via the community college and UNC system for working adults. S287 (S.L. 201 1-331)extends the venture period from 24 to 48 months for small business incubators, “sites for new business ventures in the service area of the community college that are in need of the support and assistance provided by the college; without which the likelihood of success of the business would be greatly diminished.”Strategic Infrastructure: • Support for full feasibility analysis of new state port facility in vicinity of Southport. According to Mark Bondo in Fiscal Research: The fiscal cost to the State for doing a feasibility study for the North Carolina International Terminal (NCIT) (the port near South Port) would be $4, 705,000 in State funding. This would be used to match $5,205,000 in Federal funding. The project would last about six years. The Army Corp of Engineers had begun a reconnaissance study to address the feasibility of deepening the Cape Fear River navigation channel to 50 or more feet. However, in last year’s Appropriation’s Act, language was used to prohibit the Dept. of Environment and Natural Resources (DENR) and any State General Funds from being used on the NCIT. Because of this, DENR requested that the federally funded reconnaissance study focus on modifications to the channel that serves the Port of Wilmington. Thus, any new study would probably need new Federal action and appropriations, which are uncertain. -4-
www nchouserepublicanleader.corn .Join my Facebook Group: Paul Stam, North Carolina House Republican LeaderTwitter@PaulSkipStam January 2012FiscalBalanced Budget: On June 15 2011, the House voted 73 th — 46 to override the veto of Governor Bev Perdue to balance the state’s budget.Lowered Tax Rates: The budget contained the largest tax rate cut in the history of North Carolina. It makes our state more competitive with our neighbors. It puts almost $1.5 billion each year back into the hands of North Carolinians. Cuts taxes for EVERY North Carolinian by allowing temporary sales and personal income taxes to expire, reducing the state’s sales tax from 7.75% to 6.75%. Part of this tax goes to counties. The State’s share was reduced 20 percent from 5.75% to 4.75%. —Regulatory Reform: Legislation to limit the burden of regulation on businesses became law. Senate Bill 22 An act to limit new agency regulatory requirements that result in - substantial additional costs. House Bill 542 An act to provide tort reform for North Carolina. - House Bill 709 An act to Protect and Put NC Back to Work by reforming the Workers’ - Compensation Act. Senate Bill 781 The Regulatory Reform act to increase regulatory efficiency in order to - balance job creation and environmental protection.JobsSmall Business: A $50,000 personal income tax deduction for active business income. The deduction provides tax relief to 450,000 business owners in 2012 and 2013.EducationFunding: The budget fully funds the teachers in the classroom, not the bureaucracy.
January 2012Policy: Senate Bill 8, “No Cap on Number of Charter Schools”. Already new charter schools have been authorized. More enrollment growth is allowed in existing charters. House Bill 344 allows individual income tax credit for children with disabilities who desire private education and creates a new fund for special education in the public schools. House Bill 48— Eliminates some end of grade testing in the public schools, except as required by Federal law or as a condition of a Federal grant. House Bill 588— Requires public schools to teach a semester in high school entitled, “American History I—The Founding Principles.” The course will include a study on the Creator endowed inalienable rights of the people, rule of law, equal justice under law, — private property rights, federalism, due process, individual responsibility. Senate Bill 727—Ended the State’s collection of union dues in education.HealthcareProtect Freedom: House Bill 2 protects North Carolinians from the “individual mandate” in the federal Patient Protection and Affordable Care Act (Obamacare). The Governor vetoed it. Republican leaders filed an Amicus Curiae (Friend of the Court) brief to the 11th Circuit Court of Appeals. The Court of Appeals ruled 2-1 in favor of the states. The U.S. Supreme Court will decide by June 2012.Property RightsProtections: House Bill 92— Repeal the land transfer tax. House Bill 762 — Protect landowner’s rights. House Bill 845— Reform the involuntary annexation laws. The House passed a Constitutional Amendment that will protect private property rights. House Bill 8 titled, “Eminent Domain” passed the full House on a vote of 98 to 18. The Senate will vote in May 2012.Illegal Immigration Protection: House Bill 744— The “Safe Schools Act”. A principal of any public school shall require the parent or guardian of any child presented for admission for the first time to that school to furnish a certified copy of the childs birth certificate or other satisfactory evidence of date of birth. -2-
January 2012 House Bill 36— Requires government and larger employers to use the Federal E-Verify program to verify newly hired employees.FamilyMarriage: A referendum on a constitutional amendment to define marriage as only between one man and one woman will be held May 8, 2012.Pro-LifeLegislation: House Bill 854— An act to require a 24-hour waiting period and the informed consent of a pregnant woman before an abortion may be performed became law after the House and Senate voted to override the Governor’s veto. One section only (ultrasound) has been enjoined by a federal court while another federal court has approved the Texas version. House Bill 289— Authorizes the Department of Motor Vehicles to issue various special registration plates including North Carolina Zoological Society, ARTS NC, North Carolina State Flag and Donate Life. A federal court has preliminarily enjoined only the “Choose Life” plate. Permanently ended state funding of abortion in Medicaid and in the State Health Plan, except in cases of rape or incest or when the mother’s life would be in danger. House Bill 215— Unborn Victims of Violence Act allows the murderer of a pregnant woman to be charged with the crime of also killing the unborn child.Election LawPhoto ID House Bill 351, “Restore Confidence in Government” requires voters to provide photo ID and allows more flexibility when applying for absentee ballots. It was vetoed by the Governor on June 23, 2011. The House was unable to override the Governor’s veto. Because of a parliamentary procedure it is eligible for reconsideration in May 2012.Criminal Justice Senate Bill 9 Restores the death penalty for first degree murder. The Senate has — overridden the Governor’s veto. The House will vote in May. House Bill 642, the Justice Reinvestment Act, restores balance in the criminal justice system. While treating more serious crimes even more seriously it saves valuable prison space by releasing less violent criminals earlier. It strengthens the probation system. -3-
NEWS RELEASE FOR IMMEDIATE RELEASE -- February 17, 2012 — (As revised)General Assembly’s Actual Public Education K-12 Budget Compared with Governor Bev Perdue’s Proposal for 2011-2012Raleigh Governor Perdue has criticized the state budget for “extreme cuts” to public education. She insists --that a 3/4 percent regressive sales tax increase (a 16% increase in the state’s share) was and is necessary toavoid dire consequences to the public schools. The ink was not even dry on the state budget before shedenounced it as destroying and devastating public education.However, Governor Perdue’s proposed budget for K-12 public education was only about $15 million morethan the 2011-12 budget the legislature actually adopted. Let’s examine the facts:There is less than 1 percent difference between the direct appropriations for K-12 public education budgetthan the Governor proposed. The nominal difference is 1 .43 percent directly appropriated in the ratifiedbudget. But after taking into account that the More at Four Program was shifted to the Department of Healthand Human Services ($65,011,651 was taken from the Department of Public Instruction and used by the.Health and Human Services) for prekindergarten programs the adjusted difference is 0.57 percent.But another adjustment needs to be made: The General Assembly provided $28,261,830 more to counties inlottery money fora final difference of $14,947,374. This is 0.19 percent out ofatotal appropriation of$7,707,586,791 for the Governor and $7,692,639,417 for the General Assembly.In providing a balanced budget during an extraordinary difficult economy, the Assembly provided only about$15 million less than the Governor even requested. That is less than a rounding error. But the Governorwanted to raise $850 million in new taxes to cover this $15 million difference.The Republican leadership in the General Assembly also enacted a number of other notablelegislative accomplishments for education in 2011. 1. Removed the cap on charter schools and provided for enhanced enrollment growth. 2. Reduced End of Grade testing, leaving only tests required by federal law while using true assessments of our t[ 10 1h 11 schools to measure student achievement with ACT tests in 8th, and grades. These are based on national norms. 3. Teachers were provided liability insurance by state government at no expense to them. This can save them between $120-$400 a year.
NEWS RELEASEFOR IMMEDIATE RELEASE -- January 20, 2012 -- Why Does Governor Propose Job Killing Tax Increase? Study Indicates Increase Will Result in 8,792 Jobs LostRaleigh Governor Beverly Perdue Tuesday proposed to raise the state sales tax rate by —almost 16 percent in the midst of our state’s worst recession in decades. The Governorstated she will demand the legislature increase the current state portion of the sales taxfrom 4.75 percent to 5.5 percent.The Kenan-Flagler UNC School of Business estimated last year that 11,000 private sectorjobs would be created as a result of the 2011 elimination of the “temporary” sales taxincrease of 1 cent. Simple math indicates that if reducing the tax rate from 5.75 percent to4.75 percent creates 11,000 jobs then increasing it by 3/4 of a percent to 5.5 percent ffldestroy about 8,792 iobs in the private sector.Why would the Governor propose such a program while the state is still recovering from arecession? 1. There is no downside for her! She is already on record in 2009, 2010 and 2011 demanding higher state sales taxes. (After campaigning against it in 2008.) 2. She knows that the General Assembly will not approve it. 3. By proposing $850 million in new revenue, the budget she submits for the 2012-2013 year will not need to make any realistic choices. She can propose all sorts of spending increases to please her political pals knowing that it will not happen.
NC Sales Tax Rates Compared to Neighboring States:Current LawTenn. 7.00% + Local 2.75% = 9.75% (note Tenn. has no income tax) — — —SC 6.00% + Local 3.00% = 9.00% — —GA 4.00% + Local 3.00% = 7.00% -- —NC 4.75% + Local 2.00% = 6.75% (note—some local options take it 1/2 percent higher) — --VA 4.00% + Local 1.00% = 5.00% — --With Gov. Perdue’s Increase:Tenn. 7.00% + Local 2.75% = 9.75% (note—Tenn. has no income tax) -- --SC 6.00% + Local 3.00% 9.00% -- —NC 5.50% + Local 2.00% 7.50% (note—Some local options take it ½ percent higher) -- --GA 4.00% + Local 3.00% = 7.00% -- —VA 4.00% + Local 1 .00% = 5.00% -- --Governor Bev Perdue’s tax increase would make it more likely that North Carolinians willgo to Georgia or Virginia to purchase expensive goods and less likely that our neighborsfrom Tennessee and South Carolina will shop for expensive goods in North Carolina. ###
r HE ,,( flR1H •KRULEl II 1. •t CHAPEL lULL ‘)L’Sl N IS a(:IIOOL •.AMl’U LIC II “ I .,,‘ 4z,, I 4 4r914 IIKU,KINS M.NAN I fill h KAN lFNrrl( F C I’lL LV rF F.f4TEliL’fI.l’E IIAPEL IIILL. 44 47 ‘.4’)— 4 41 C’ W 1,ifl4, I,,r,’U .1,, April 18, 2011 Senator Sob Rucho North Carolina General Assembly, 300 N. Salisbury Street, Room 300-A Raleigh, NC 27603-5925 Senator Rucho: My Center’s research team has completed a rigorous analysis of the North Carolina tax policy changes you are considering. That analysis is described in detail in the attached report. I am providing a summary of our findings here. Proposed Tax Policy Chanqes Our analysis estimated the employment effects of the following tax policy changes: • Expiration of the temporary 1-cent sales tax • Expiration of personal and corporate income surtaxes • Reduction in the corporate tax rate to 4.9% effective tax year 2012 • Reduction in business income taxes for S-corporations, limited liability corporations (LLCs), and sole proprietorships, including exemption of the first $50,000 in non-passive business income from taxation. Estimated Economic Effects The proposed tax policy changes will have both short term and long term effects. Over the next two years the proposed changes will positively stimulate the State’s private sector economy as citizens and businesses retain and use money that otherwise would have been paid as taxes. Once the tax reduction impacts are fully realized in fiscal year 201 2-201 3, the proposed tax changes will result in base level economic effects including: • $2.3 billion in increased NC industry output; • nearly $700 million in new NC labor income; and • creation of almost 20,000 new private sector NC jobs at an average wage of $35,969 We anticipate additional short term job creation depending on the pace of the overall economic recovery and the individual decisions made by the half million businesses across North Carolina. In both the short and long term the State should also gain more jobs through relocations of new employers attracted in part by a more competitive tax environment. While such job gains cannot be forecast, the overall effect of the proposed tax changes can be assumed to enhance North Carolina as a location for both existing and relocating employers. Economic Competitiveness Concern In addition to the proposed tax changes, it is cntical that the legislature address policies to restore the State’s long term economic competitiveness. For several decades North Carolina had been a national leader in job creation. As recently as the 1990’s North Carolina’s
the following tables are also prov,ded to allow for tax by tax comparison; of the relative impacts of each prospective change by industry output, employment, and labor income effects. Table 21: Impact on Economic Output, P’ 2011-2012 Direct Indirect Induced I Total Multiplier1-cent sales tax: $766,759,000 $223,160,000 $337,691,OCO $1,327,611,000 1.73 personal income $119,591,000 $35,007,000 $52,490,OCO $207,088,000 1.73 surtaxeS; corporate income $20,143,000 $6,386,000 55,986,0CC $32,514,000 1.61 surtaxe.s: Reduction In the $93,767,000 $29,728,000 527,865,0CC $151,360,000 1.61 corporate tax rate: Business income $91,405,000 $28,980,000 527,163,0CC $147,548,000 1.61 taxes: Total: $1,091,665,000 $323,261,000 $451,195,000 $1,866,121,000 1.71. Note: Totals may not sum due to rounding Table 22: Impact on Economic Output, FY 2012-2013 Direct IndIrect Induced Total Multiplier 1-cent sales tax: $776,061,000 $225,868,000 $341,788,OCO $1,343,717,000 1.73 personal income $121,043,000 $35,431,000 553,127,0(10 $209,601,000 1.73 surtaxes: corporate income $20,351,000 $6,452,000 56,048,0CC $32,851,000 1.61 surtaxes: Reduction in the $214,275,000 $67,935,000 563,676,0CC $345,885,000 1.61 corporate tax rate: Business income $233,654,000 $74,079,000 569,434,0CC $377,166,000 1.61 taxes: Total: $1,355,384,000 $409,765,000 $534,073,000 $2,309,220,000 1.69 Note: Totals may not sum due to rounding Table 23: Impact on Employment, FY 2011-2012L[i-cent sales tax: Direct 7,029 Indirect 1,620 Induced 3,074 Toal’’’ Multiplier (11,723 1.67 1,134 256 478 1.67 :::uh1c0me[ ‘::: Reduction in the income 146 —‘ 44 55 , 1.67 corporate tax rate: Business income 663 199 248 r 1,109 1.67 taxes: I Total: 9,652 Note: Totals may not sum due to rounding 2,322 4,108 16,083 [ 1.67 19’k) 13 ( UNC Center for Competitive Economies