Paul Stam

NORTH CAROLINA CHAMBER OF COMMERCE

MAY 19, 2010

“YOU SAY YES, I SAY NO, YOU SAY WHY, I SAY I DON’T KNOW”

Mr. Speaker, Mr. President and Mr. Leader,

What a privilege to address the North Carolina Chamber of Commerce in this time of economic uncertainty and challenge. Let’s get back to basics.

But first, there is a rhetorical device making the rounds that Republicans are a tribal party of “no”, while Democrats are statesmen who make tough choices and provide solutions. This rhetorical device was first set to rhyme and music by the Beatles:

“You say ‘yes’, I say ‘no’, You say ‘why’, I say ‘I don’t know.’”

But does this rhetoric translate into reality. In 2006 when Speaker Black was in the chair my red light went out. On every vote that day I had to stand up and wave at the Clerk when I wanted to vote no. Speaker Black, probably in jest, told me my quota of “no” votes had been used up. That is one way to encourage others to toe the party line. But whether an answer should be “yes” or “no” depends on the question.

Last year, in the depths of a bad recession House Democrats proposed a new tax on LLCs, even LLCs which were losing money. In committee, Republicans made a motion to delete that new tax. We voted “yes” to delete the tax. They voted “no”. On the floor the motion was made to approve the entire package of new taxes tied up so tight it was unamendable. We voted “no”. They voted “yes”. So which was the party of “yes” and which was the party of “no”? Who knows? I suggest that is an irrelevant way to categorize positions. Instead, in this instance an impartial observer would say House Democrats wanted to tax money losing LLC’s and Republicans did not want to add a new tax to LLC’s.

It is true that we said “no” to raising an additional $1.3 billion of taxes next fiscal year in the middle of a bad recession. On that we have the agreement of every economist who would give an opinion and who appeared before the Joint Interim Committee on Tax Reform. Instead House Republicans presented factual evidence that the true spending gap last year was 1/10 the amount advertised. And we provided detailed proposed solutions to more than cover that gap. I’ll run a few of them by you since they are also available this year.

For example,

We proposed that out-of-state athletes not qualify for in-state tuition. That would have saved over 200 teaching positions. The House said yes – the Senate said no.

We proposed the Neumann Amendment, which the House held to be “out of order,” refused to suspend the rules and rejected. This would have taken 2 years of the tobacco settlement money, (which otherwise wanders off budget), to use for a three to one match against Federal Medicaid Funds, in order to get over $200 million of additional funds for critical needs. We proposed. They opposed. Republicans said “yes”. Democrats said “no”.

We proposed removing the cap on the number of public charter schools so that we would have a chance at hundreds of millions of dollars in federal “race to the top” money. But our bills to eliminate the cap were never heard. So far the answer is “no”. Perhaps by the June 1 deadline the possibility of losing that federal money will be too scary to continue saying “no” and a tiny increase in the cap will be ratified.

Many times the language of “no” is the words “out of order”. For example the Neumann Amendment to draw down hundreds of millions of dollars in additional federal money actually was “out of order”. But on opening day, knowing this issue would arise, we proposed a Rules Amendment that would make it in order, but the majority said “no”. It is still out of order in the House, but it is also still a very good idea and is a version of a bill introduced by Sen. Clodfelter.

We offered the Blackwell Amendment to regulate and drastically reduce Golden Parachutes in state government. I have never understood the concept of paying someone to not work. We worked the Blackwell Amendment into the House Budget, but someone said “no”, and since none of us are amongst the Conferees that decide these things, we do not know if it was the Senate or our own Conferees. So the State continues to use those “money wasting sweetheart deals” – primarily at the universities. Maybe this year someone will say “yes”.

We proposed “Executive Branch Oversight” of the state health plan as recommended by the State Auditor, instead of the ineffective and bungling current system of only legislative oversight. They said “no”. Maybe this year they will say “yes”.

Often times it is not the “out of order” gambit used but rather “no” comes by refusing to take proposals up at all. We have proposed legislation to protect North Carolinians from the worst of the predatory ravages of Obamacare – the individual mandate. But the majority has already said “no” in advance – and emphatically.

I could go on with dozens of proposals, researched and offered, which have been turned down, simply by refusing to bring them up or by ruling them out of order, or just dropped in conference.

This year we have a continuation of the budget crisis. First we need to appreciate the facts on the ground. The governor has proclaimed another round of what she calls draconian cuts to solve huge gaps. She also says that her proposed budget spends 5% less per capita than 2 years ago. But the actual fact is that her proposed budget would spend per capita not 5% less, but rather 2% more than the actual spending of fiscal year 2008-2009. It would go from per capita spending of $2,127 to $2,169. The Senate version, which is being debated today, would spend per capita just slightly less than the governor but still more than in 2008-2009.

This time of famine and drought follows 5 years of fat from 2003-2007 when five budgets in a row continually increased spending at twice the rate of inflation plus population. That is the heart of the problem and suggests the solution – we need to freeze state spending at the current level. We know we can do it because we are doing it. And that would provide several hundred millions of reserves to meet next year’s inevitable crisis.

Sound economic solutions will not be simple but are based on three foundational principles:

First, reduce the marginal rates of taxation. Targeted tax credits are almost irrelevant to job creation and are usually hugely expensive.

1. North Carolina has the highest rate of income tax in the region, both personal and corporate. And to add insult to injury they surcharged that for two years. This year’s senate proposal to lower the marginal rate on some from 7.75% to 6.9% is good, but it should not be limited to only certain businesses. A builder who sells 3 houses is ineligible. Because it is based on gross receipts of $850,000 it operates irrationally.
2. Except for Tennessee, North Carolina has the highest sales tax rate among our neighbors. And Tennessee has no income tax. If someone has a choice, will they buy a large item here or across the border?
3. How many of you have travelled to South Carolina or Virginia lately? Our gas tax is significantly higher. Does that mean we get more revenue? I doubt it. Virginians who have travelled through North Carolina once will learn to fill up before they arrive at our borders. They use our roads and pay us nothing.

We’ve got to get those marginal rates where they are competitive again.

Second, the General Assembly needs to provide significant regulatory relief. Gimmicks will not work. I have looked at the House majority’s jobs bill (HB 1721). Everyone is for more jobs. But take a look at it and see if, despite some good ideas, it will actually do anything for job creation. Sen. Berger will expand on this theme.

Third, Republicans have been proactive on tax and spending reform. On December 1, 2009 House and Senate Republican members of the Interim Joint Committee on Tax Reform publically stated 5 principles of spending and tax reform that will lead to job creation in North Carolina.

One, the concept of substantially reducing personal and corporate income tax rates and sales tax rates is good. If that reduction is accomplished by broadening the base in a revenue neutral way, that is the right way to go but it raises four other issues.

Two, neither the public nor Republicans trust Democrats to keep tax rates low if they broaden the base. There must be a mechanism to ensure that rates stay low. Here are two possibilities:

1. The first possibility is a Constitutional amendment limiting the state sales tax rate at about 3% and the county sales tax rate to an equivalent. This would be similar to the way the Constitution specifies a limit on tax on net income, or
2. The second possibility is a Statute that sets out as a Rule of Order, applicable to each House, that an increase in the rate must be separately passed by both Houses and signed by the Governor, and cannot be combined with any other matter, unless by a 2/3 vote of each house.

Three, base widening must delete exemptions and refunds which are in current law for political reasons/not because of true economic considerations.

Four, tax reform must include spending reform that has passed the House in the past – zero based budgeting, and must include:

1. Procedural reforms that allow “off budget” sources of revenue to be considered as part of the budget process.
2. The Governor’s proposed budget must only include the amount of revenue collected in the prior calendar year (with a recession exception).

And, finally principle five, in determining what is “revenue neutral” the temporary taxes imposed in 2009 shall be treated as if they had expired.

To these 5 principles the majority has not replied “yes” or “no” – only silence. We encourage you to encourage them to say “yes”.