Local News
9:40 am
Wed July 17, 2013

Who's Happy, Mad And Meh On N.C. Tax Overhaul?

Taxes in North Carolina are going to change. The North Carolina House and Senate on Tuesday tentatively passed tax overhaul legislation, and Governor Pat McCrory says he'll sign it.

As lawmakers have considered multiple approaches to changing the state's tax system over the past few months, a variety of people and organizations have swooned over or screamed against the proposals.

So now that Republican leaders have agreed on a final plan, who loves it, who hates it, and who's mixed on it? 


We're Happy With It

Let's start with the obvious: the state's Republican leaders are pretty pleased with themselves. The governor and leaders in the Senate and House all promised to cut taxes this year. Now it looks like they'll come through.

The plan is to lower personal income taxes to a flat rate of about 5.8 percent. Corporations would pay less, too. Their rate would drop by about 2 percent.

The state's business chamber and local chambers are happy about that because right now, North Carolina has the highest income tax rates in the Southeast. Here's Charlotte Chamber President Bob Morgan.

“So for North Carolina to be reducing the tax rates and to be able to now advertise the reduction in the tax rates – that's something we can sell to our economic development prospects and make North Carolina more competitive as a result,” Morgan said.

With the cuts, North Carolina will be in the middle of the road for individual income rates in the Southeast. On the corporate side, the state would have just about the lowest rates in the region.

We Dig It, Too

City and county governments are both fans, too, and this is a good example of how much things have changed since lawmakers first started laying out their proposals.

Some of the early versions would have eliminated local food taxes and the sales tax refunds that governments can qualify for when they buy stuff. Local governments said they might have to raise property taxes to make up for those revenues.

But in the final tax agreement, the state's nonpartisan research team estimates local governments will actually bring in more revenue. That's because they can charge sales tax on things like movie and concert tickets, as well as some service contracts, like an extended warranty for a new TV.

We're Mad About It

Advocates for the poor don't like the final tax agreement one bit. Here's Alexandra Sirota, the director of the N.C. Budget and Tax Center.

"The joint tax plan that was released really is a tax cut for the wealthiest taxpayers and profitable corporations that will require everyone else to pay the price," Sirota said.

The state's nonpartisan research team estimates that everyone​ almost everyone will pay less in personal income taxes. But it's true that the the wealthiest will get some of the biggest cuts compared to what they're paying now. 

Sirota also argues poor and some middle class people will actually pay more in overall taxes. That's because of the new sales taxes and the expiration of a certain tax credit for people with low and moderate incomes. But it'll be tough to know for sure until we all start paying the new rates.

Wait, My Home Value Might Change? 

Some homeowners may also be peeved about the final tax plan, according to the North Carolina Association of Realtors. 

In the agreement, homeowners will only be able to deduct $20,000 in mortgage interest and property taxes because of a new cap. 

The association says that will have a direct impact on some homeowners and an indirect impact on the rest of them. The direct part: you may not be able to deduct as much from your income tax filings. And the indirect part: your home value may go down. 

We're Mixed On It

Under the final tax agreement, North Carolina will bring in about $2 billion less over the next five years. That worries some advocates, who wonder what will happen to education and other services the state provides?

The North Carolina AARP, for example, is kind of on the fence about the tax plan for that reason. On the one hand, the organization is  happy that social security income won't be taxed. But advocacy director Mary Bethel says state services for the elderly are already strained. 

"We're concerned that with increased population, increased cost of services and infrastructure needs, that the revenue loss to the state is not going to be adequate to cover core, essential things that we feel government has a responsibility for," Bethel says.

She says examples of those services for seniors include delivering meals to their homes and helping them with transportation.

We Also Think It's Sort Of Meh

Another group that's not thrilled  is the N.C. Center for Nonprofits.

One of the early proposals would've eliminated charitable deductions, but that didn’t make it into the final agreement. Nonprofits are happy about that. But they're concerned about a new cap on sales tax refunds they can get.

The cap is set at $45 million. The Center For Nonprofits estimates that won't impact anyone as of now - not even the big hospital systems that are the state's largest nonprofits. But the center and the N.C. Hospital Association are both concerned lawmakers may lower that cap at a later point.

Update: After this story aired, the fiscal research team released several scenarios in which some poor and middle class families will pay more in individual income taxes under the final agreement. That's due to some exemptions being eliminated and a new cap on deductions. Examples of low-income and middle class families who will pay more include some taxpayers age 65 or older and some married families filing jointly with several children.