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Bill Black: NC drops progressive tax code by instituting a flat tax and eliminating earned income tax credit

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JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

This year, due to the largest overhaul of the tax system in 80 years, North Carolina is getting rid of their earned income tax credit. This change in the tax law was passed by the GOP-controlled government in the previous legislative session. On top of that, the state’s richest residents and corporations will receive large tax breaks, and the North Carolina Justice Center estimates residents with average incomes of nearly $1 million will receive a total tax cut of nearly $10,000, while the corporate tax rate will decline from 6.9 percent to 5 percent next year and could fall all the way to 3 percent if revenue goals are met in 2017.

Now joining us to unpack all this is Bill Black. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist and former financial regulator. He’s also a regular contributor to The Real News.

Thanks for joining us, Bill.


DESVARIEUX: So, Bill, this is a large and complex tax overhaul. But can you just describe for us some of the components of the bill and discuss how the shift from a progressive income tax to a flat tax will affect state residents?

BLACK: Sure. I also teach public finance, so we do this type of thing in class all the time.

First, this is not something unique to North Carolina. This is the standard playbook when the GOP gets control of a state under the Tea Party. So they move from any type of progressive tax system, in which the rich pay more, to a deeply regressive system, in which the poor pay a higher percentage of their income.

Now, the earned income tax credit was an idea that largely came from conservative economists like Milton Friedman. So this has been an idea that has had broad support of both parties. And the idea is to help out the people who are working, typically full-time, but just earn barely enough to be right at the poverty line. And the earned income tax credit helps these people have a little bit of additional money so kids can get health care and shoes and things like that there. And so it’s been one of the most attractive programs to both parties, it is routinely praised by economists, and, naturally, therefore that’s what they want to get rid of, because they want to hurt the poor working class, which doesn’t vote for them much.

DESVARIEUX: But, Bill, on the surface this sounds to be very attractive, because you have the ordinary people, their tax rate would drop from about 6 to 7 percent to about 5.8 percent. So they’re at the end of the day paying less in taxes. So why isn’t this favorable to the working people?

BLACK: Well, defining ordinary people as not including people who are eligible for the earning tax credit I think is a dubious thing. The cutoff for the earned income tax credit in North Carolina in general was $50,000. So we’re talking about a very significant portion of the working class in North Carolina.

And the second thing, as you mentioned in the setup piece, was, of course, that they got rid of the progressive nature of–and it wasn’t–it was only modestly progressive in North Carolina. But that was too much, so they got rid of all of it and put in a flat tax. And, you know, so far we’re just talking about income taxes and ignoring other taxes which are even more regressive, like the sales tax.

So the overall package moved from a modestly-to-moderately-progressive state tax system to a seriously regressive one, which, by the way, is precisely what they’re doing in other states, like Louisiana and Kansas, as well, as soon as they get complete control. And it’s part of a broader package as well to try to maintain control politically. So you get the voter suppression stuff, and you get the gerrymandering in the districts as well.

Now, what you need to know is that all of this is brought by a close ally of the Koch brothers. His name is Art Pope. And the governor of North Carolina, who was elected in large part with the political support, the financial support, through dark money, of Art Pope, made him the budget director. And so the budget director has gone after the tax changes you talked about, but he has also attacked Medicaid expansion and made that politically impossible, which of course is a dramatic reduction in the welfare of poorer, but not just poor–Medicaid would have been twice the poverty level of people would have been eligible in North Carolina. So that’s a very large portion of North Carolina.

And, of course, all of that would have been essentially free money from the federal government that would have stimulated the North Carolina economy. So even though they claim that what they’re doing is to stimulate the North Carolina economy, what they really are involved in is an unholy war on the working-class that will actually reduce economic growth.

So, again, this is part of a much broader plan by Art Pope, and it is not limited to North Carolina. They will try to bring it to a state close to you when and if the GOP gets control of your state legislature.

DESVARIEUX: Alright. Bill Black, thank you so much for joining us.

BLACK: Thank you.

DESVARIEUX: And thank you for joining us on The Real News Network.


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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.