Here’s an issue from the current state policy debate that hasn’t gotten nearly enough attention in recent days: the General Assembly’s new plan to tax homeowners who manage to get some of their debt forgiven in order to avoid foreclosure and stay in their homes. Under the new gas tax compromise brokered by the House and Senate and tentatively approved yesterday, the Senate’s original plan to tax these homeowners for the loan forgiveness — something the feds do not do — has been put back in the bill.
As the one state capital journalist who has been doing a consistently solid job of following this issue, Mark Binker of WRAL, reported last week:
“North Carolina has decided to charge taxes on some items that would have gone untaxed due to changes to federal laws. The most controversial change along these lines has to do with mortgage debt that is forgiven.
When someone who is in a financial pinch has the amount they owe on their home forgiven through a debt relief program, that can be counted as income. The federal government decided not to tax this amount, but the state will under the Senate Bill 20.
This change was controversial when the measure passed through the Senate because it levies a big tax bill on those trying to work their way out of debt. When House lawmakers first passed this bill, they excluded the mortgage forgiveness from taxes. The compromise measure takes the Senate position.”
You got that? even as people throughout the state gnash teeth and get hot under the collar about a few pennies on a gallon of gas, many North Carolinians will now quite possibly and unnecessarily lose their homes as the result of new taxes that directly defeat the purpose of public programs that were designed to save them. The move is, in short, a perfect symbol of the shortsighted and regressive approach to tax policy that is one of the signature features of the current state political leadership.