Kick-off to North Carolina TechVoice Chapter Features Federal and State Policy Forecast for 2013

On January 11th, CompTIA partnered with the North Carolina Technology Association (NCTA) to launch our third TechVoice chapter. About 60 technology executives attended a breakfast gathering and panel discussion in Durham, NC featuring Congressman David Price (D-NC), State Representative Marilyn Avila (R), information technology attorney Ed Turlington and myself. NCTA President and CEO Brooks Raiford moderated. With 2012 elections now completed and the fiscal cliff averted for now, the conversation centered on what we could and should expect in terms of policy and its impact on the technology industry.

Price began by noting that incongruent Congressional election outcomes (actual votes in aggregate for Democrats and Republicans versus seats won due to redistricting and gerrymandering) were, in his opinion, contributing to a more ideologically polarized Congress and that to bridge this polarization, House leadership had resorted to what he termed “government by crisis.” The hallmark of this method of governing is to leave decisions until deadlines to force action around the fiscal cliff, the debt ceiling and annual deadlines for funding the government.

In Price’s view, this leads to poor and incomplete decision-making. He would prefer a more thoughtful approach to our fiscal challenges, noting that the Simpson-Bowles proposal for deficit reduction, which he said includes both revenue increases and entitlement reforms and spending cuts, is bold but fair. Absent such an approach, the congressman said we are headed for more fiscal showdowns and that federal funding for research and development and STEM education is at risk in our government-by-crisis environment.

Avila similarly lamented the effect of gerrymandering on our electoral process but advised the audience not to believe everything they’ve read and heard about the new Republican governor and Republican majority in the state legislature. They are singularly focused on the state economy and will do all they can to bring the budget into balance and make North Carolina a more attractive destination for investment. She noted that corporate tax and regulatory reform were top priorities. She forecasts an effort to zero out corporate taxes and anticipates that taking on industry-specific tax incentives and credits, and eliminating silos in the corporate tax structure, would be part of this effort. Personal income taxes were not on the table for now given all of the uncertainties that North Carolina families face.

Ed Turlington and I added some observations about the broader tax discussion as it relates to the IT industry. At a state level, Turlington said, corporate reform can be good for business but the private sector should be made a partner in such discussions. He also specifically highlighted opportunities that may arise in this legislative session as it relates to the public cloud. For example, North Carolina is spending about $30 Million of its $400 million Race to the Top Funds on a public education cloud. At a federal level, I noted, there are several items in the recent tax agreement – the small business expensing limitation, the R&D tax credit, the capital gains exclusion of gain on small business stock and bonus depreciation – that are relevant to small- and medium-sized IT firms and have been renewed and/or extended for one year. Nevertheless, all of these items and more are bound to be part of broader tax reform discussion in 2013. In considering corporate tax reform, it should be pointed out that many small businesses file under individual tax rates, and this will have to be thoughtfully addressed in order to ensure the viability and growth of SMBs.

Other items covered by the panel included:

Tax repatriation and a territorial tax system: Price said that a “tax holiday” on overseas corporate profits in order to repatriate dollars to the U.S. is “not an enduring solution to the underlying question.” Previous tax holidays had not, in his view, been successful in ensuring profits be reinvested in the U.S. Moreover, he felt that a territorial tax system was not the answer to creating proper incentives for investment and job creation in the U.S. Avila added that at a state level, tax incentives should be company and industry neutral in order to attract and retain business investment.

Healthcare reform and state health insurance exchanges: A significant component of the Affordable Care Act (ACA) is the option available to states to operate, either alone or in partnership with the federal government, a state health insurance exchange where individuals and small businesses can shop for insurance rates. The idea here is that insurance companies will have to compete in every state in order to get business and thus competition will drive down prices. Avila said that she does not know what North Carolina’s newly-elected governor would decide but that she does not favor a state health insurance exchange for North Carolina. She believes that the federal government, rather than providing broad standards for operation, would eventually dictate strict requirements on states. Price countered that the ACA did in fact provide broad standards and hoped that North Carolina would embrace the health insurance exchange option.

Cybersecurity: Price, who serves as the ranking member on the Appropriations Subcommittee for Homeland Security, said that he has been focused on cybersecurity – in particular protection of the government networks. That said, he noted that the general level of polarization in Congress had thwarted passage of a Senate bill as the House leadership “decided that they did not want the bipartisan Senate approach” to reform. Nevertheless, he predicted that Congress would take up consideration of legislation again in the 113th Congress.

Autonomy of municipalities to raise revenue for infrastructure:A member of the audience noted that his municipality does not have enough tax revenue to repair roads until 2040. He then asked if Avila favored the ability of municipalities to increase their own tax revenue. She said her first preference would be to assign state revenues to where they are most needed and that rather than spending on rail and some mass transit, those dollars should be assigned to road infrastructure. Moreover, she said that the state government had to do a better job of analyzing the effectiveness of tax expenditures and then develop budgets accordingly. That said, she did indicate that municipalities should have some autonomy to raise revenues for roads but that from a state perspective she did not favor tax increases. Price answered that municipalities should be able to raise tax revenues but that we should not settle for a trade off between roads versus rail and mass transit. He favors investigating infrastructure banks that leverage government funds with private investment and he feared that tolling would become a more frequent outcome.

This was a terrific kick-off to the North Carolina TechVoice Chapter. We look forward to partnering with NCTA going forward to maintain a steady conversation with technology businesses in North Carolina about what federal and state policy developments mean for their bottom line and what we can do about it. For pictures of the event, click here.