Video courtesy of Carolina Journal
Article courtesy of North State Journal
By Donna King | April 12, 2017
RALEIGH — In a press conference Tuesday, the N.C. Retail Merchants Association warned of high prices for consumers and job loss across the state if a border adjustment tax passes as part of the national conversation on tax reform.
The border adjustment tax, or BAT, is billed as a way to boost U.S. manufacturing by exempting export revenues from federal tax. However it would also end the deductibility of import costs by corporations and retailers, making imports for production or resale costlier. Retailers say it’s fundamentally unfair to retailers over large corporations that primarily export, and would amount to a 20 percent increase on consumer goods. The cost is estimated to be $1,700 per family per year.
“It would tax virtually everything that N.C. families buy: groceries, prescriptions, gas, home goods, shoes, clothing — you name it,” said Andy Ellen, president of the N.C. Retail Merchants Association. “It would slap a giant 20 percent increase on any of those items that are imported. Every morning I drink a cup of coffee and eat a banana. My children eat strawberries year-round. Those products don’t grow here and last time I checked we can’t move the equator.”
“The biggest victims of BAT will be working class families who’ve seen wages stagnate in recent years but will be looking at a $1,700 increase in the cost of goods.”
Andy Ellen, president of the N.C. Retail Merchants Association
The BAT is part of a tax reform blueprint supported by U.S. House Speaker Paul Ryan. President Donald Trump is also working on a tax plan. The quest to revamp the tax code moved to the top of Trump’s legislative agenda after a Republican push to repeal and replace President Barack Obama’s signature health care law, the Affordable Care Act, failed in the U.S. House.
To tackle the biggest overhaul of the U.S. tax code since the Reagan era quickly, House Republicans are hoping to avoid the political fault lines in the party, so opposition among conservatives is raising a red flag in Congress.
“The total value of imports coming into N.C. was around $52.8 billion. That is equivalent to 11.1 percent of N.C.’s GDP,” said Donald Bryson, executive director of N.C.’s Americas for Prosperity. “A 20 percent BAT would lead to $10.57 billion in new taxes on N.C.’s economy, and on our citizens and businesses. To put that in perspective, in 2014 the state only paid $8.69 billion in federal income taxes. … That’s a significant burden.”
Art Pope, who served as a legislator and the N.C. State budget director under former Gov. Pat McCrory, is a force in GOP politics and said he has been in touch with N.C.’s representation in the Washington to oppose a BAT. He said it unfairly targets retailers, especially small ones, over other companies that are capital intensive and can still deduct capital goods like equipment and buildings.
“It’s not right, it’s not fair, it’s not tax neutral to let one group deduct all their expenses including capital expenses while retailers cannot even deduct their costs of goods sold,” said Pope.
Pope said some of the state’s delegation have decided to oppose it but others say it’s still on the table. The House Republicans hope to vote on a tax reform bill before they leave for summer recess at the end of July. Congressman Mark Meadows (R-N.C.), who leads the Freedom Caucus in Congress and was credited with coordinating opposition to the recent health care reform effort, said the tax reform debate boils down to a decision between the BAT plan, backed by Ryan and deficit-funded reforms. He did not take a position on Thursday but recently said his group could support reforms that are not revenue neutral.
“We can get it done before August as long as we are real serious about having real debate. … Debate has to be about changing policy,” said Meadows. “We need to go ahead and start having those discussions today. Let’s look at legislative text.”
Two conservative groups, Freedom Partners and Americans for Prosperity, issued results of a survey this week that ranked N.C. as the No. 22 state that could potentially be the most harmed by a BAT, primarily because the retail industry in N.C. is the largest private employment sector with one out of every four jobs tied to retail.
The study was sharply criticized by House Ways and Means Committee Chairman Kevin Brady, a Texas Republican who intends to include the BAT in tax reform legislation.
“That so-called study will be easily discredited and probably fits the definition of fake news,” Brady told reporters. “It takes one provision, pretends the economy freezes … applies it in our current tax code and comes up with fantasy figures.”
Proponents of the BAT refer to a macro-economic theory that says the U.S. dollar will appreciate in value by 25 percent to make up the cost. Pope disagrees.
“I live in the real world,” said Pope. “I have to negotiate with individual vendors on individual products ranging from pants, socks, handkerchiefs, each individual item. To imagine that the U.S. dollar is going to appreciate 25 percent overnight to offset that increase tax is not realistic.”
Tax reform negotiations are currently underway with hearings anticipated for the summer and action on a measure in August.
“We know it takes 500 messages to fill up the voicemail box of a U.S. senator,” said Bryson. “We filled up 24 last week and we are going to do another 24 this week and another 24 next week.”
In a August 10, 2016 interview with Charlotte Business Journal’s Erik Spanberg, businessman Art Pope discussed a variety of issues facing North Carolina including HB2, Medicaid expansion, tax policy and the UNC system. The entire interview can be found below or online with Charlotte Business Journal.
Art Pope: Charlotte to blame for any HB2 economic losses
Charlotte Business Journal: August 10, 2016 | Erik Spanberg
A hero to Republicans and a bogeyman to Democrats, Art Pope remains a lightning rod in North Carolina politics. Pope, the 60-year-old CEO of Henderson-based Variety Wholesalers, a privately held company that runs 270 discount stores, most recently served as state budget director under Gov. Pat McCrory in 2013 and 2014.
McCrory, a Republican and former seven-term Charlotte mayor, counts Pope among his political allies. And it was Pope who helped back the coalition that led to GOP majorities in both chambers of the General Assembly during the 2010 midterms, the first time in a century Republicans wielded so much clout in state politics. Two years later, McCrory became governor, breaking a 20-year drought in that office. The previous Republican governor — another Charlottean, Jim Martin — hired Pope as his special counsel in 1985.
Pope has funded and contributed to various state and national Republican and right-leaning causes and counts himself as a longtime friend of the Koch brothers.
This week, he spoke to me about McCrory’s re-election bid and the impact of House Bill 2, the law that overrode a local ordinance extending nondiscrimination protections and rights to gay and transgender people. He didn’t rule out a return to public service, but said he’s happy running his family business. As for rumors Pope aspires to run the UNC System, he dismissed them as far-fetched.
A former four-term state lawmaker known for libertarian leanings and for being a budget and policy wonk, Pope discussed everything from what he sees as the danger of corporate incentives to the beauty of highway bonds. Below are excerpts from our conversation, edited for clarity:
What, if any, impact, do you see as a result of HB2?
First of all, the issue is not just House Bill 2. The original issue was a Charlotte city ordinance which sought to govern and have local laws applied to local businesses for employment and public accommodation that were different from not only North Carolina law, but from the United States Congress-enacted protections, such as Title IX.
What House Bill 2 made clear is that there was going to be a uniform law governing employment and public accommodation and it had equal protection language that protected individual citizens consistent with the federal equal protection clauses, the federal statutes. It made it clear that municipalities did not have the right to pass local laws, which probably could not have been enforced under the North Carolina constitution even without House Bill 2 being passed.
But it all started with the Charlotte ordinance. Before the Charlotte ordinance, North Carolina didn’t have any controversy over discrimination against (the) LGBT community or the use of bathrooms.
The North Carolina General Assembly did pass a law, though. The Human Rights Campaign, an LGBT advocacy group, sought to make an issue of it and gathered allies to attack North Carolina’s reputation, even though, again, North Carolina’s law was consistent with the federal law and most other states. So what’s hurt North Carolina’s reputation — and it has had some economic impact — is a smear campaign being conducted by Human Rights Campaign, encouraged by the Democratic party, to encourage boycotts of North Carolina. That’s unfortunate.
What, if anything, do you think should be done, needs to be done, to repair that damage?
Well, the Charlotte ordinance overreached and House Bill 2 overreacted. So there were changes that needed to be done to House Bill 2 to try and reach a solution.
Because there are some genuine concerns by the LGBT community that could and should have been addressed. And some of the overreach in House Bill 2 could have been corrected. One overreach was removing the state’s law that allowed an individual employee to sue their employer for discharge in violation of public policy, but it really had nothing to do about LGBT issues. It’s more of a plaintiff’s attorneys versus defense attorneys issue. That part did get restored.
There were efforts by many, and I was one of those, to try and reach one solution to rescind the Charlotte ordinance, then repeal House Bill 2 and go back to the status quo where there were no issues.
The Human Rights Campaign and Mayor Jennifer Roberts of Charlotte vehemently opposed that. They wanted the repeal of House Bill 2 in its entirety or nothing and, unfortunately, that meant they ended up with nothing after the General Assembly adjourned(last month).
A couple of other changes, which were discussed, and at points in time did have legislation being proposed to discuss, was to change the term biological sex in North Carolina’s equal protection clause to simply sex (and) more closely mirror the federal statues. And let the issue of whether sex means the same thing as gender or not be litigated out in the courts. (Federal interpretations of sex have, under the Obama administration, included gender identity.)
Another solution was if you have transgender individuals using bathrooms, to go ahead and try and define it better because the Charlotte ordinance had no definition of it. So define it … as a medical definition, which states like Utah and Connecticut have adopted, which would have (addressed) a lot of the concern about any biological male using the excuse of identifying as a female to go into a women’s bathroom. That was a legitimate concern that could have been addressed. And whether or not to have that done by certification or driver’s license rather than by the change on your birth certificate.
But, given how complex these legal issues are — part of the proposal also was to have a blue-ribbon study commission to address these issues in a calm and reasoned manner and hear from all sides of the debate. Those were proposed solutions but unfortunately the Human Rights Campaign and, according to WBTV news, Roy Cooper himself lobbied against those changes, against those solutions, and discouraged Democrats from participating in a bipartisan bill at the end of the session. So those changes were dropped and nothing passed.
So, Roy Cooper and Human Rights Campaign have a political issue for an election year rather than a solution that addressed real concerns by all sides.
What did you think of the suggestion by the Charlotte Chamber to let the cities and towns have the authority to pass local ordinances?
Totally apart from the LGBT issues and the original Charlotte ordinance controversy, I think it is best for businesses and employers in North Carolina to operate under one single uniform state law. … Having 100 counties and however many municipalities all having different employment laws, public accommodation laws for businesses and people to try and figure out what the law is wouldn’t be very good for the North Carolina economy and is not a very good justice system. One uniform state law would be best in all regards.
What did you think about the NBA decision to remove the 2017 All-Star Game from Charlotte and what do you think the ultimate impact of that decision will be?
It’s unfortunate. The NBA is entitled, like any businesses or individual, to lobby for what they think is good public policy. I think it’s unfortunate, if not outright wrong, that the NBA engages in a boycott if it doesn’t get its way. It’s also hypocritical.
Using the Human Rights Campaign’s list of states that have laws enact their agenda, that provide the LGBT protection they are seeking, only 12 NBA franchises are in states where the LGBT agenda has been enacted. Four of those are in California. So 16 (NBA franchises) are not in compliance. (Editor’s note: There are 30 NBA teams.)
There’s been discussion that the NBA All-Star Game that’s not going to be held in Charlotte will be held in New Orleans instead. Well, New Orleans and the state of Louisiana do not have the LGBT agenda enacted into law. And it is absolutely correct that the NBA is a hypocrite when they have exhibition games in China, which does have a horrific human-rights record, including the imprisonment of those who are identified as homosexual. So it’s purely politics — very disappointing that the NBA chooses to play that way. I’m concerned and fearful that now people are going to respond in turn and start boycotting the NBA and their advertisers.
I think public policy issues should be debated in public policy debates and campaigns and legislatures, not be forced through economic boycotts.
What do you think of Donald Trump?
I do not support Donald Trump or Hillary Clinton for president.
You have known the Kochs for a long time and one of the things they have been supportive of in the past couple of years is sentencing reform in criminal justice. Do you share that viewpoint?
I very much support criminal justice reform and sentencing reform. And in fact, I’ve discussed (that issue) with the Kochs and the organization they work with. North Carolina is actually a leader of the nation in that. It’s called the Community Justice Investment Act, where the state legislature and — started by Gov. (Bev) Perdue and continued by Gov. McCrory — have tried to divert offenders for misdemeanors and even low-level felonies, where there’s no violence involved, into alternative sentencing, probation and parole. But to ensure that those who are on probation do not pose a further threat, they actually beefed up funding for supervision by probation.
The overall effect has been that our prison population has dramatically dropped. We’ve been able to close prisons and save money for the North Carolina taxpayers and put those (funds) to higher and better uses, like education. There’s been no increase in crime and, better yet, those individuals who are on probation can be self-supporting, and support their families, rather than being a burden on their family and a burden on the taxpayer.
Within our own company, we have revised our application process so those who have committed misdemeanors or even low-level felonies that have served their time and are good citizens now will not be put at a disadvantage for employment opportunities.
Let me ask you about what has happened with the economy and, particularly, tax policy in North Carolina since the Republican majority came in in 2011. In North Carolina, there have been a number of income tax cuts both for corporations and for individuals. And there have been surpluses. In Kansas, which has cut taxes fairly aggressively under Republican leadership, they have had a number of budget problems with deficits. Why is it proving to be much less troublesome or much more successful in North Carolina than in Kansas?
Well, first of all, being a fiscal conservative means you have balanced budgets. And for Gov. McCrory, when I served as his state budget director, he was very concerned that tax cuts not lead to budget shortfalls the way we had in 2001 and in 1991 and in 1982 and numerous times beforehand.
So a good deal of work by the fiscal research staff in the General Assembly, by the state budget office and the executive branch and negotiation between legislators and the governor (all contributed). We wanted to do responsible tax reform that simplified the tax code, lowered the rate, but still had sufficient revenue coming in to fund state services. And we did that.
On one point, we did on the corporate rate reductions — because there was concern that the overall tax reduction may be too much — we put in a trigger so only if state revenues achieve a certain level would the corporate income tax rate go down. And in the end, I’m glad to say that the state revenue did grow as the economy grew. We reached those triggers, so the corporate rates continue to go down. But at the same time the corporate rate went down, the personal income tax rate went down, revenue has in fact grown. We have generated budget surpluses both from excess revenue collections in recent years but also from managing the budget well, so more money reverted from the state agencies that saved and returned into the general fund rather than having a spend-it-or-lose-it mentality.
So a lot of work went in to make sure we did the budgeting and the estimates on the tax revenue right overall.
Kansas, as I understand it, just very aggressively passed cuts. Tax cuts cost more than they thought, but they did not control their level of spending. So they collected less revenue, spent more and that’s a classic case for a budget shortfall.
I’m sure you’ve heard this critique on the left. There have been those who have said that while it is prudent to build up your rainy-day fund, the balance has gotten out of whack and some of these surpluses should be put towards infrastructure, education and social programs. What is the appropriate balance?
I was one of the authors and proponents of a rainy day fund when I was in the state legislature back in 1990, 1991, and it was adopted in 1991 by bipartisan support in response to the 1991 shortfall. The goal back then was to increase at least 5% of the general fund. Thank goodness we did have a rainy-day fund — we had a literal horrible rainy day with Hurricane Fran and then Hurricane Floyd where the rainy-day fund was used. It was also for economic disasters. And, again, thank goodness we had a rainy-day fund at the end of the Great Recession in 2008 and 2009. The rainy-day fund was then back to zero.
Once the economy is recovering, then yes, you should build back up your rainy-day fund for the next natural disaster or economic disaster. The way the rainy-day fund is built up is what’s now end-of-the-year surpluses have been prudently set aside for that. I’m glad to say it’s a positive that we had achieved 5% of the general fund, and this year, we were able to (reach) 7.5%. Local governments generally keep one-twelfth, or about 8% of their funds in a reserve, so the state government should reach that same level. And believe me, if we ever have a natural disaster, a humanitarian disaster or an economic recession again, I think everyone, including even the left, liberal progressives, will be glad the rainy-day fund was there.
Why do you think Pat McCrory should be elected for a second term as governor?
I think he’s earned it by helping and serving the people of North Carolina (with) much-needed regulatory reform, tax reform, (which) benefited all the citizens of North Carolina, helped our economy grow faster than the rest of the country and, at the same time, increased key long-term investments, including funding in public education and still having leftover reserves, building the rainy-day fund. He’s done all of the above.
Roy Cooper, his opponent, has been critical in a number of areas, but particularly on Medicaid expansion. He has said expanding Medicaid would help people and create tens of thousands of jobs. Where do you think that argument breaks down?
First off, is the assumption that Medicaid expansion is needed in North Carolina. What Medicaid expansion at this point in time means (is) people who are individuals who are working, do not have children and often already have private health insurance need to go on Medicaid. Those who are poor, women and children, they’re already eligible for Medicaid.
Second is (to assume that) you’ll get healthier, better results from Medicaid expansion for those individuals. That is very well disputed from other states who have had pilot programs where they had some individuals who are eligible for state-level, Medicaid-like programs but other people in the same circumstance did not have healthier outcomes.
Third, is that there’s no cost to Medicaid expansion (because the federal government pledged to pay 100% of those costs for the first three years after the Affordable Care Act passed and at least 90% afterwards). Right now, our (federal) government’s in debt and growing in debt, so to expand Medicaid, especially when it supplants private insurance and people who choose not to have insurance, we’re increasing the national debt, which means the debt we’re leaving our children. So it may, quote, be free to the states, but it’s in fact increasing the debt to our children.
But, finally, it’s not free to the state. From the very beginning, even the first year, there still would have been a 5% cost to the state for the administration. Then the federal share was to decrease and the state share was to increase (over the years) so that we would have an overall growing Medicaid budget, which is one of the fastest-growing items in the state. And Gov. McCrory was open to the consideration of Medicaid expansion with reforms if they could get waivers and exceptions from the Obama administration. Just as other governors sought those waivers, like Gov. (Mike) Pence in Indiana, but the Obama administration was not giving waivers, so there was no opportunity to reform it.
So Gov. McCrory and the General Assembly’s policies were, first, let’s reform Medicaid that already exists in North Carolina before we consider an expansion. Originally, the hope was with a Republican president and a Republican Congress then you could get waivers so the state can do Medicaid or provide health services in a more cost-effective manner.
On the issue of incentives, last year there was some disagreement between the administration and legislative leadership on the appropriate level of incentives. How is North Carolina doing right now with incentives?
Both Gov. McCrory and the General Assembly have been far more cautious about the use of incentives than prior administrations and prior legislators. I think Gov. McCrory has said, “I’m not going to give away the farm.”
And very often times, businesses who already plan to come to North Carolina will try and milk us for all the incentives and grants and taxpayer money they can get. I call it crony capitalism and corporate welfare. And it’s really not a cause and effect because they’re already coming here.
Or some times they’re using North Carolina as the bait. They’re really planning to go to Georgia or South Carolina already, but they’ll say, “Well, we’re going to go to North Carolina,” when they really didn’t intend to. And then the news media write North Carolina lost something (and the other state) already had them. So you’ve seen a reduction and elimination of some specialized tax credits in incentives, and I think you’ve seen a more prudent use of what’s called the Job Development Investment Grants.
Some incentives that were clearly a loss to the state, such as the film incentives, have been completely reformed to a flat grant program. So I think you’ve seen a tremendous improvement.
But the good news is, even with a reduction in the level of incentives, you’ve seen North Carolina have one of the fastest-growing economies in the country because of our overall quality of life, our investments in education, our better tax climate, our better regulatory climate — those benefit all employers including those who have been in North Carolina for decades creating new jobs rather than just rewarding the out-of-state company with the highest-paid and best lawyers and lobbyists getting a special deal for themselves at the expense of the taxpayers and the other employers and companies in North Carolina.
Why do you think North Carolina has, so far, been unable to attract a major auto manufacturer and how important is that?
One, I don’t think it’s important. I’d rather have broad-based growth. It’d be great to have an automobile manufacturer — I’m not going to discourage it — but I’d rather have broad-based, diverse growth, which is what North Carolina has right now. In specific cases, it’s things totally beyond the control of politicians, of government.
Volvo primarily chose South Carolina because of the port of Charleston, its proximity to the sea lanes, which Wilmington does not have. Wilmington has hard rock that limits the depth of its channel which Charleston didn’t have, so (Charleston was) able to deepen and widen their channel over time.
I think it was Toyota that chose to locate in Texas because Dallas-Fort Worth had direct air connections to Japan, which Raleigh, Durham and Charlotte did not have. So you have to look at the individual factors. Most businesses choose their locations based on proximity to the quality of the workforce, which North Carolina has, quality of education, but also (proximity) to their customers and suppliers and logistics. The logistics for Volvo were in South Carolina and the port of Charleston, and logistics for Toyota was going to be the international airport, which Dallas-Fort Worth had and North Carolina did not.
In the past year, Gov. McCrory wanted to include about $1 billion worth of road projects in the bond package that ultimately passed this spring — but without the roads money included and instead focusing only on education, parks and non-transportation infrastructure. The legislature preferred a pay-as-you-go funding approach. Which would do you think would be better?
Actually, I have a personal record on that. When I was in the legislature in 1989 and we had legislation for the Highway Trust Fund, I sent forth an amendment for a $1 billion bond component for the Highway Trust Fund.
The reason I proposed that then and the reason I think Gov. McCrory is correct in wanting bond funding for highways this past year is that you should pay for highways as they are used. So rather than asking this year’s taxpayers to pay up front for new highways, take out a bond that’s repaid over the 20, 30 years that a highway is used, then the users in the future will be paying back that bond.
It is cheaper to have a bond and pay the low interest rates that state government bonds get than pay as you go. It would have allowed us to do more construction and more acquisition, early, at a lower cost.
One aspect of higher education I wanted to ask you about: Because of the three centers that were closed at UNC and former UNC System President Tom Ross being forced out, there is a feeling on the left that Republicans had some sort of vendetta or opposition to what was happening in Chapel Hill. What can you say to people who subscribe to that theory?
The motivation by the left of the Democratic Party is to create a wedge issue so people will vote against Republicans, even if there’s no truth to it or it’s a highly biased, distorted truth. It was under Gov. Perdue’s administration and the 2009-11 budget passed by the Democrat majority that reduced the university spending on centers by one-third. But there was no outcry when that was done because it would have been Democrats and liberals criticizing their own Democratic governor and their own Democratic majority.
In Gov. McCrory’s budget in 2014, we did propose a much more modest reduction in the spending on education centers and left it to the university to review which of those centers should be funded and which are not. Some of the centers were very much integrated into the academic mission of the university; others had no relationship to it. And, by the way, Gene Nichols’ poverty center, which was a political entity to start with by (former U.S. Senator and Democratic presidential candidate) John Edwards, was not on that list because it no longer received public funding, though it had earlier on.
For the overall university funding — and it was out of necessity of the Great Recession — that the biggest reduction in university funding came under Gov. Perdue and the budget enacted by the Democrat majority in 2009-10. … There’s been no sharp reduction under Gov. McCrory. Instead, overall spending has increased; it’s just not true that there’s ill will towards the university leading to harmful budget cuts. That’s just not true.
There has been a lot of speculation about you becoming UNC president — what’s your interest?
I’ve laughed at that. I have no interest in it. Tom Ross and I are personal friends. We disagree on budgeting policy; that’s to be expected. When I first heard my name on a blog or a talk radio show being mentioned for university president, I told Tom, I have absolutely no interest in it. I find it amusing. I care very much about the university. I’ve been a big supporter, and through our foundation, of North Carolina State University, Chapel Hill, other universities, but I have plenty to do right now without seeking to be president of the university myself.
Erik Spanberg covers government, sports business, hospitality and airlines for the Charlotte Business Journal.