OPINION
10A • WEDNESDAY, FEBRUARY 16, 2011
SALISBURY POST
Venerable NYSE is going by the board
Salisbury Post “The truth shall make you free” GREGORY M. ANDERSON Publisher 704-797-4201 ganderson@salisburypost.com
ELIZABETH G. COOK
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RON BROOKS
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Scripps Howard News Service
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N.C.’S COMBINED RETURNS
Tax code needs clarity Untangling the budget mess
ov. Bev Perdue sounded like the Republican she isn’t Monday night when she called for a cut in the state corporate income tax. From the current level of 6.9 percent — the highest in the Southeast — she proposed lowering the corporate rate to 4.9 percent. Then North Carolina would have the lowest corporate income tax rate in the region. Critics of state government have long considered the 6.9 percent rate unfriendly toward business and a barrier to recruiting new industry. That may be so, but large corporations with operations in North Carolina might have been happier still if the state had been clearer on certain points concerning corporate income taxes — such as combined returns. A recent ruling concerning Delhaize America, the corporate parent of Food Lion, is a case in point. The January decision from Judge Ben F. Tennille upheld $4.4 million in extra taxes and $1.3 million in interest the N.C. Revenue Department assessed Delhaize Governor Perdue but rejected as unproposed cutting constitutional a $1.2 the corporate rate million penalty, acto a report in to 4.9 percent, cording The News & Observwhich would er in Raleigh. The state had armake it the lowest gued that Delhaize in the region. lowered its tax bill for 2000 by establishing “abusive tax shelters” that enabled the company to hide its “true earnings” here by shifting profits to an out-of-state affiliate. The affiliate was formed in Florida, which has a lower corporate income tax — currently 5.5 percent to North Carolina’s 6.9 percent. The judge said the state was correct in levying the higher tax and interest, but not the 25 percent penalty. “This case demonstrates what happens when creative accounting meets creative revenue enforcement,” the decision said. It was worth the fight. When the state started requiring some taxpayers to file combined income tax returns in the 1990s — in response to what appeared to be taxmotivated corporate restructurings — the revenue department did not provide guidance on who would be required to file a combined return. Walmart Stores East lost a similar, bigger battle with the state in 2009 and had to pay nearly $30 million in back taxes, interest and penalties. The General Assembly remedied the situation in the budget bill it passed last year; the bill allows the revenue department to assess penalties for hiding income, but only after it publishes a set of rules about how multi-state corporations should file their taxes. The department had resisted such clarity, saying it was “like handling a gun to the guy that is about to rob us.” It’s a complex situation, more than can be summarized here. Still, the debate over tax shelters would cool off considerably if North Carolina had the more favorable rate. But the corporate income tax raises only 7 percent of the state’s General Fund revenue, while the individual income tax raises 54 percent. If corporate taxes drop, who makes up the difference? Budget cuts will have to be part of the answer, but where and when? Perhaps we’ll get some answers when the governor unveils her budget Thursday.
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Common sense
(Or uncommon wisdom, as the case may be)
A government that robs Peter to pay Paul can always depend on the support of Paul. — George Bernard Shaw
ince 1792, when a small group of brokers began trading stocks under a tree on Wall Street, the venerable New York Stock Exchange has been a symbol of America’s financial might and embrace of rough-andtumble capitalism. And now the NYSE is merging with Germany’s biggest stock exchange in a deal in which it will be very much a junior partner. Deutsche Borse will own 60 percent of the new company, the NYSE 40 percent, and it will operate out of both Frankfurt and New York. This is not the blow to American national pride it might seem, if only because the world of financial exchanges has been changing so rapidly with the emphasis on size, speed, technological innovation and global reach. Trading is now a 24/7 operation. And exchanges have been consolidating as a result. The day before the NYSE deal was announced, the London and Toronto stock exchanges announced their merger. Indeed, the NYSE already owns four European exchanges. While the combined U.S.German exchanges will be the largest stock-and-futures market in the world, this also marks New York’s waning standing as the world's financial capital. Once, trading on the Big Board, as it was known, was conducted face-to-face by jostling, bustling brokers on the noisy floor of the exchange. But the actual buying and selling are now done by computers whose physical location isn’t terribly important. They can be anywhere. The financial community likes the planned merger. Shares of both Deutsche Borse and the NYSE rose on the news. The combined company would have a market capitalization of $25 billion, but before it reaches that point the deal faces steep regulatory hurdles here and in the European Union. That process, said one official, is likely to be lengthy and detailed. And the New York delegation in Congress is unlikely to let the merger pass unnoticed. After getting the merger approved, the next tough problem might be what to name the new company without arousing wounded feelings. Because of what The Wall Street Journal called “nationalistic concerns,” officials want to avoid having the word “Deutsche” or the acronym “NYSE” in the new name.
As Washington dithers, clock continues to tick BY MATTHEW LEATHERMAN mleatherman@stimson.org
ozens of new members rode into Congress in November on the promise of cutting budgets. Aside from how they’re handling the money, it’s clear that this promise didn’t include reducing the actual number of budget plans currently inundating Washington. Assessing Congress members’ and the administration’s fiscal responsibility is almost impossible without clear points of reference. So, let’s review. Today, the government is in the fifth month of the 2011 fiscal year, which runs from October 2010 through September 2011. Despite being almost halfway through, though, Congress has not passed a 2011 budget. Indeed, this budget was ill-fated from the very beginning. Last spring, for the first time since Democrats retook the Congress in 2006, Congress failed to pass legislation, called a budget resolution, that defines how much the government would spend overall. Lacking that guidance, the committees in each chamber of Congress that authorize and fund executive branch programs failed to coordinate, and ultimately were unable to reach agreement before the fiscal year began. Instead, they decided to extend the 2010 budget by two months to Dec. 3. And then Dec. 18. And then Dec. 21. Days before Christmas, Congress gave up, extended the 2010 budget all the way to March 4, and passed the problem off to new members. This budget still is stuck in Congress. March 4 is almost upon us, and it is almost certain that the House and Senate will dig their heels in deeper and extend the 2010 budget levels yet again. Republicans in the House are passionate about deeply cutting government spending. They have already passed a bill to roll some accounts back to their 2008 level, and later this week they will consider a budget that would reduce spending this year by roughly $60 billion. But neither of these bills will pass the Democrat-controlled Senate and, even if they did, neither would be signed by President Obama. Hence the likelihood that the government will continue at 2010 levels past March 4. The next extension likely will take us to mid-May, around the time that the Treasury approaches our national debt limit, which also is set by Congress. This may galvanize a grand bargain that raises the national debt in exchange for significant spending cuts for the remainder of the 2011 fiscal year. If not, we’re at government shutdown. Still, this is only one of Washington’s budgets. Monday, on schedule, President Obama re-
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leased his administration’s budget request for the 2012 fiscal year, which starts this October. Technically speaking, Congress should pass a budget resolution to set top-level spending in the next few months, giving it the summer to scope out each department’s authorities and the funds they will be given to fulfill them. But expecting that to happen alongside the manufactured crisis about the debt limit and 2011 budget would be naïve. What will happen, however, is much less clear. President Obama and Republicans in Congress were able to compromise on extending the Bush era tax cuts last December when circumstances required it. It’s possible that they’ll find common ground again early this summer, making real decisions about federal spending that can shape the debt limit and the budgets for 2011 and 2012. The tax decision was a different kind of compromise, though. Republicans got two additional years of tax cuts, and all the entailed debt from lost revenue. Democrats got an extension of unemployment benefits, and all the entailed debt of additional spending. In other words, President Obama and congressional Republicans compromised by digging our fiscal hole even deeper. This time they would have to compromise by agreeing to start climbing out of the hole — a far more difficult decision. If they’re unable to find the courage for that decision, we’re likely to get more of the same budget shenanigans in 2012 that we’re enjoying right now. The Senate and House will set dramatically different spending caps, each chamber’s appropriators will make incompatible decisions, and negotiations will collapse. At this point, Congress typically would decide to extend the previous year’s budget until compromise is reached, but no one is quite sure how that would work if the budget being continued (i.e., 2010) is two years old. So are the new Congress and the chastened President Obama being more fiscally disciplined than before? No one knows for sure if his request for 2012 is more or less than the 2011 budget since there isn’t one. And no one knows how big proposed cuts are since it’s not clear what’s being cut from. But the answer is clearly that they are not — the most basic principle of fiscal discipline is choosing a budget. We don’t have one right now and, by the looks of it, it may be some time before we do. ••• Former Salisbury resident Matthew Leatherman is a research associate with the Stimson Center, a Washington, D.C., think tank that studies national and international security issues. This article originally appeared in the Stimson Center’s blog, The Will and the Wallet.
LETTERS Encourage youth, teachers — it’s a great investment Despite the fact that there are many problems with, and facing, young people, there are impressive young people making a positive difference, especially in Rowan County. Secondary school awards ceremonies never cease to amaze me as I hear of the academic and public service accomplishments of our students. In addition, we are home to several state championship teams which illustrate the dedication of the students, coaches, parents and volunteers needed for such an accomplishment. Many serve through their churches, changing lives by doing mission work here and around the world. Often these students are supported by parents and families who model such excellence. Those who work with these students on a daily basis, their teachers, should also be given credit. Most of the teachers I know stay late and then take work home in order to be prepared to give their students the best chance for success. They truly care about their students and want their students to not only master subject matter but to also make a positive impact on the world. They do not always receive positive feedback, especially from those whom they teach, yet they still strive to give their best. Often, years pass before they truly see the results of their investment in individual students. We can help in this process. Do you know a youth, especially a middle or high school student? If so, let them know you are pulling for them. Do you know a
TO THE
EDITOR
Letters policy The Salisbury Post welcomes letters to the editor. Each letter should be limited to 300 words and include the writer’s name, address and daytime phone number. Letters may be edited for clarity and length. Limit one letter each 14 days. Write Letters to the Editor, Salisbury Post, P.O. Box 4639, Salisbury, NC 28145-4639. Or fax your letter to 639-0003. E-mail: letters@salisburypost.com.
teacher? If so, share a word of encouragement with them. Maybe you could drop a note of thanks to a teacher who made an impact in your life or in the life of your child or grandchild. Let’s look for ways to invest in our great young people and those who are called to serve them. — Brian Farmer Salisbury
Rehabilitation behind bars As our prison construction flourishes, the recent article about Oklahoma lawmakers’ attempts to reduce criminal penalties and crank up the parole process was enlightening, especially considering that state faces a mere $600 million budget deficit as opposed the $3.7 billion deficit N.C. taxpayers face. The birth of the beast we call the Truth in Sentencing Act (structured sentencing) in 1994 was supposed to eliminate disparities and provide mandatory sentences. With it, our lawmakers also
provided substance-abuse programs and a plethora of vocational programs. The U.S. Department of Justice periodically continues to offer character education in morals and ethics, anger management, etc. We have the tools and the resources to change, and many offenders have taken advantage of these programs. I’ve met a few with degrees and many with job skills our taxpayers have provided, and these job skills cannot be outsourced — but they must languish in the belly of the beast until they’ve served a mandatory sentence before they can use these skills. It’s somewhat paradoxical that prior to structured sentencing, we had a parole process for those who served their time and earned parole, yet those offenders didn’t have the vocational and character education classes that we enjoy today. In 1994, the state had 14,000-15,000 inmates; today, it has nearly tripled that figure. Why spend all this money to rehabilitate us if the state wishes to keep us imprisoned 20 years? Have we, as a progressive society with so many changing standards, forgotten the concept of social forgiveness or, perhaps more importantly, rehabilitation? Many men and women grow older, and with age comes wisdom, regret and a desire to change. No one has the answers for drug addiction and crime. But for the sake of our children, their schools and our senior citizens, entitlements, prison openings and school closings are not the elusive panacea we’re looking for. — Howard Eugene Safrit Albemarle Correctional Institution