Save $70 Million Dollars Per Year  click here for short version

Use of basic corporate tax planning principle to create State Income Tax Waiver raises teachers’ pay and saves State $70 Million Dollar per year.

Can I interest you in adding up to $70 million dollars to our State’s budget without raising anyone’s taxes, while at the same time allowing for an increase in pay for our public school teachers?  The concept is a tax waiver.  Once you understand this concept you’ll wonder why we never figured this out sooner.

Summary

• A tax waiver on the current State Income Tax for our State’s public school employees is proposed.  This tax waiver concept for a group of individuals in our State is in direct contrast to the tax rebate scheme on the state withholdings tax passed by our General Assembly on October 3^rd.  The rebate scheme of Governor Easley is a corporate welfare device.  My tax waiver is real tax relief for deserving individual citizens in our State. 

• The tax waiver concept employs a widely used, simple tax planning technique that results in keeping $70 million dollars per year in our State that currently is needlessly transferred to our Federal Government. 

• While saving $70 million dollars in the State’s General Budget, a small 1.5% average increase in the take home pay of all public school employees can be accomplished.  No new taxes are required to achieve this feat.  The funds made available in this plan are simply the amount of our current North Carolina tax dollars that are transferred to Washington because our State has never before applied tax planning principles to the huge “company” it is running known as the Public School System. 

• The State should defer to individual counties and school boards as to whether this 1.5% average increase in compensation is distributed evenly to all public school employees under their administration, or if a greater amount will be given preferentially to classroom teachers.  This should generate beneficial local citizen interest in county government and public school administration. 

It is a shameful waste of our tax dollars in North Carolina to have our State act as an agent for the transfer of a large portion of our tax collections to our public school employees and then immediately take some of this money right back from them through the North Carolina State Income Tax.  This current method creates double taxation on the money of our State’s citizenry by unnecessarily cutting the Federal Government in on the flow of our North Carolina Tax dollars. Such a waste of taxpayer money is not incurred by other states we compete with economically in the southeast such as Tennessee and Florida, who do not have a state income tax.  Instead of continuing this unnecessary transfer of our wealth to Washington, I propose that public school employees be granted a tax waiver on the full amount of their current North Carolina State Income Tax.  Using this simple and basic corporate tax planning technique, this income tax waiver system would eliminate up to $70 million dollars per year of our state income taxes needlessly sent to Washington.  We need to keep this $70 million dollars of our money at home here in North Carolina right where it belongs.  

In contrast to the corporate rebate system just passed by the General Assembly on Oct. 3^rd, (Reference my other info release dated Oct. 9^th,Governor’s Committee of 5 to Slop Our State Income Tax Dollars Around the Trough with Favorite Corporate Lobbyists,) the tax waiver system I propose for public school employees has the added benefit of reducing the flow of dollars from our State to the Federal Government.  Actually saving this money through this tax waiver idea works because our State both provides and taxes the wages of its public school employees.  By choosing only to provide and not to tax, the State saves the Federal Income Taxes that would have been charged on the portion of wages, which are paid only to cover the cost of our State Income Tax.  This simple and very legal tax planning method achieves a savings on the order of $70 million per year because almost $4.5 billion dollars or our State’s $14.3 billion dollar budget is used to pay wages to our public school employees.  The funds made available in this plan are simply the amount of our current North Carolina tax revenues that are transferred to Washington through the individual tax returns of our public school employees.  These funds can be captured and kept in our State by applying sound tax planning principles to the huge “company” operating in our State known as the Public School System. 

Here is a simplified tax calculation to show how easily this tax waiver plan generates $70 million dollars/year that can better used within our State instead of being senselessly transferred to Washington, while at the same time allowing for an increase in take home pay for our teachers. 

 

State Budget Savings
Current System Cost = (Line 1 - Line 8)	Tax Waiver System = (Line 1 - zero)
$47,144	$46,350
Savings to State / $50,000 Salary	$794
% Savings to State / $50,000 Salary	1.6%
Current State Budget for Wages	$4,500,000,000
State Savings per year	$71,460,000

To be clear to those who prefer things in written format, here is the brief description of what just went on in these charts: 

Currently, the State transfers to counties and higher education a total of about $4.5 billion dollars per year of its tax receipts to be used to pay public school employees.  It then takes right back from these employees about $257 million dollars in State Income Tax.   Under my proposed Tax Waiver system, this original transferred amount of $4.5 billion dollars is reduced by 7.2% or $328 million dollars, BUT the employees are given a waiver from the $257 million dollars that were previously paid on the original $4.5 billion dollars.  It is this $328 million dollars held back and not exposed to Federal Taxes that generates the $70+ million dollars for the State ($328 minus $257).  By sheltering this $328 million dollars from Federal Taxes, the State gains a savings of over $70 million dollars that would have been paid by its employees to the Federal Government.  In the charts, the example of an employee currently making $50,000 sees a $511 dollar (1.5%) increase in their annual take home pay.   

My fellow citizens, I hope you can see that a simple technique employed by tax planners across our country, quickly generates a very large number of more than $70 million dollars/year.  This is not hocus pocus accounting or tax evasion, this is good tax planning done by anyone who works with a competent accountant.   

The example above is done to start the discussion and to show that we are talking about real money here.  The over $70 million dollars of savings for our State Budget is real.  The $511 dollar increase in take home wages that happens at the same time for a public school worker currently being paid $50,000 / year is real.  Yes, the lower top line number in the tax waiver system does mean that some of this $511 dollar increase is offset by the reduction of money paid into the employee’s social security trust fund account and retirement plan.  But, to consider this offset, you have to believe that this mythical trust fund actually exists.  Those employee’s worried about this consideration have the personal freedom though to do something really radical with their $511 dollars like saving it in the retirement plan of their own choosing.  There are other specifics to talk about, but the basic concept is eminently sound.  Ask your nearest qualified accountant or tax planner to confirm it for yourself. 

Here are the mechanics of how this should all work:  

The State grants a wavier to all public school employees in our State on the requirement to pay the current rate of our state income tax.  The State then reduces the transfer payments to our counties by an amount that results in a net savings about $70 million dollars to our State Budget.  Our local counties and school boards then can each individually choose whether to adjust wages uniformly for all their public school workers so that everyone receives a 1.5% average increase in take home pay.  Or, they can choose to have this tax waiver result in a pay neutral result for some non-classroom employees and shift a greater amount of the savings towards even a higher increase in teacher take home pay.  The $70 million dollars per year retained in the State and not needlessly sent to Washington can be used either to further increase teachers’ pay or to avoid other tax increases being considered to maintain a balanced budget.

Think like a Libertarian.  Save $70 million dollars of our money.  Give public school teachers a raise.

Vote for Jim Capo, for NC Senate District 26, on November 5^th.

© Copyright 2006 Jim Capo
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Last update: 7/26/2006; 14:13:48 .


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