NC Budget and Tax Center

House tax plan bad for business

This is the fourth of a six-part blog series. (See Part 1, Part 2, and Part 3)

What would the House tax plan mean for North Carolina taxpayers? In this blog series we highlight the experience of sample taxpayers under the House tax plan. In conjunction with a distributional analysis of the tax plan which gives a better picture of the full impact, these fictional but true to life profiles will demonstrate that middle-, fixed- and low-income taxpayers would lose under this plan while the wealthiest will gain.

House tax plan bad for business

Jim lives in rural North Carolina. He started a business as a sole proprietor a few years ago—an auto repair shop that he operates out of a storage unit in order to keep overhead costs low. Jim, single with no children, earns about $37,000 a year from his auto repair business.

Under the House tax plan, Jim would see the amount of state and local taxes he pays increase by about 38 percent, or $441. When Jim realizes that HB 998 would amount to a tax hike for him, he is confused because the proposal has been framed as a massive tax cut. The House tax plan reduces the amount of pass-through business income that Jim would be able to deduct from his taxable income and would eliminate the deduction in its second year, while under the current system he could deduct all of his income. Also, due to potential budget cuts to rural economic development programs, Jim is told by the local rural economic development organization that it might not be possible to move forward on his loan application if the cuts that are needed to balance out tax cuts in the state budget go through. Jim worries that if he can’t acquire a separate property for his business he will have to continue working on cars out of his storage unit, which limits the amount of business he can take on.

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