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NC Budget and Tax Center

Senate Bill 20 passed another hurdle this morning, moving out of House Finance and to the floor for a full vote.  As I recently highlighted, state lawmakers are pursing tax changes that would further shift responsibility for paying for public investments and services to low- and middle-income taxpayers and away from the wealthy and profitable corporations.

Senate Bill 20 includes a provision that would no longer allow taxpayers to deduct expenses for tuition and related expenses such as course-related books, supplies, and equipment. The federal tax code includes this deduction, but state lawmakers are proposing that the deduction be done away with.

Eliminating this deduction would come at a time when North Carolina students and families have seen a steady increase in the cost of a college education. And this trend will likely continue, as another round of tuition increases look to be on the horizon for students attending public universities in the state. Meanwhile, state funding for need-based financial aid has not increased in recent years, meaning students likely have to incur increasing amounts of student loan debt. Read More

NC Budget and Tax Center

State lawmakers have introduced House Bill 117 (HB 117) that pushes for more tax cuts that benefit corporations, even as the state faces an ongoing revenue shortfall resulting from the tax plan passed in 2013.

State lawmakers would like to change an arcane tax provision that determines the amount of state income taxes paid by corporations. The state’s current tax system uses a formula that considers a corporation’s property, payroll, and sales in North Carolina. However, the tax change – referred to as single sales factor (SSF) apportionment formula – would only consider the sales component for certain corporations.

Proponents of this tax change claim that it will boost capital investment in the state and create more jobs. However, as BTC has highlighted before, this claim is not supported by real-world evidence. What will happen, however, is a further reduction in revenue available for public investments and services that businesses depend and rely on.

Here’s a quick recap on why North Carolina should not shift to a SSF apportionment formula: Read More

NC Budget and Tax Center

State lawmakers are targeting cash-strapped homeowners as they continue to pursue tax changes that would shift even more of the tax load to low- and middle-income taxpayers, while preserving tax benefits that have largely flowed to the wealthy and profitable corporations.

Legislation approved by the state Senate (Senate Bill 20) would require homeowners to pay state income tax on mortgage debt forgiven by lenders. Meanwhile, financial institutions that provide such consumer relief are allowed to deduct the expense as a tax write-off.

The proposal would undermine a key element of North Carolina’s recovery from the nationwide housing crisis that fueled the Great Recession. In the wake of the crisis, a number of financial institutions  agreed to  settlements that provide consumers relief for unaffordable mortgages. This often meant reducing the amount of principal debt they owed on their mortgages to make them more affordable and lessen the likelihood of foreclosure. Furthermore, the 49-state National Mortgage Settlement encourages mortgage servicers to provide such relief to distressed borrowers affected by the housing crisis.

The goal of these settlements is to ensure that homeowners who were preyed upon by unethical lenders do not fall into the financial tailspin that foreclosure often creates. The tax change proposed by the Senate would require cash-strapped homeowners who have already suffered from the disastrous housing crisis and economic downturn to report this debt forgiveness as income, even though no actual cash is provided to the homeowners.

This could deter families from accepting bank offers to modify their mortgage loans because they cannot afford to pay taxes on the amount of relief they get. Distressed homeowners seeking to stabilize their finances and rebuild in the wake of the housing crisis would face a major setback. Read More

Commentary

North Carolina needs serious policy solutions that create real jobs, but if the new economic development legislation unveiled yesterday is the route the state is going, it looks like jobless workers are going to be kept waiting awhile.

After weeks of closed-door negotiations, the House unveiled the NC Competes Act (HB 117), legislation which included a provision doubling the amount of money the state could spend on the state’s primary business incentive program, the Job Development Investment Grant and renaming it the Job Growth Reimbursement Opportunities People Program. This program provides public dollars to “incentivize” private sector firms to create jobs and increase capital investment.

Unfortunately, the program has not always delivered on its promises, and until it is fixed, it is unlikely that spending more money on it will improve its effectiveness in creating jobs.

Read More

NC Budget and Tax Center

The flood of numbers associated with the state’s tax collections has created growing confusion.  However, what should not get lost in this confusion is that those numbers all converge on one truth: the tax plan passed in 2013 costs more than was originally projected and is likely to hamper our state’s ability to reinvest as the economy recovers. Yesterday’s announcement by state officials that the consensus revenue forecast expects revenue to be $271 million short of projections for the current fiscal year confirms the challenges ahead.

So here is a break down on the numbers.

The total cost of the tax plan is approaching $1 billion for the current fiscal year that runs from July 1, 2014 to June 30, 2015. This number measures the difference between the amount of tax revenue the state would have collected under the old tax structure and what the state is collecting under the new tax plan. The new tax plan was originally estimated to reduce tax revenue by $512.8 million for the current fiscal year, but that estimate is proving to be far lower than what we’re seeing today. BTC’s original estimates suggested that the total cost of the tax plan could reach $1 billion by the end of the current fiscal year. Read More