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foreclosed house-for Rob(1).jpgHere’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.

Commentary

Tony Tata 2One would have to think that some state officials are having second thoughts this morning about laying off 500 or so Department of Transportation employees as the state Senate proposed last week. As one look out the window will remind all of us, these are the kinds of days on which it’s hard to have too many dedicated public employees keeping our highways and byways clear and drivers safe.

That said, one must wonder just how engaged state Transportation Secretary Tony Tata is in the discussion of the issue. Last night, as the brunt of the winter storm was blasting North Carolina, the Secretary was right where you’d expect him to be: plugging his latest novel and offering foreign policy advice on Fox News. He (or his publicist — it’s never clear who is on the account at any time) was even tweeting about it last night while DOT road crews were out there risking life and limb for their fellow citizens.

The bottom line: Let’s hope North Carolina’s DOT workers all have a productive and safe day out there today serving their fellow citizens. And if state leaders are really serious about doing away with redundant and/or less productive employees in the giant department, they might do well take a close look at one particular employee who is taking home $136,000 in taxpayer bucks each year even as his attention is frequently focused on matters quite unrelated to his job.

Commentary

Gas pumpThe Senate finalized its hurried approval of a new gas tax proposal today and as Budget and Tax Center analyst Tazra Mitchell explained yesterday, there are actually some things to like in it. Most notable among these is the bill’s recognition that tax rates will have to rise in the coming months and years to begin to meet the state’s infrastructure needs.

As today’s Fitzsimon File explains, however, the bill has some obvious and significant problems as well. First, is the wholly inadequate process whereby such a momentous and complicated proposal was rammed through with essentially no opportunity for public input. Second, is the silly camouflage that’s been added in the form of a temporary tax cut that will cost hundreds of Department of Transportation workers their jobs. And third is the inclusion of a totally unrelated proposal to tax people who lose their homes in foreclosure for some of the debt relief they receive (mind you, the people have still lost their homes). Great target for higher taxes there, senators!

Let’s hope the House addresses these flaws when the bill moves to the other side of the Legislative Building next week. Let’s also hope that the House considers one very obvious tool to address the inherently regressive nature of a rising gas tax: reinstating the state earned income tax credit (or EITC).

As Mitchell explained yesterday:

“Policymakers should reinstate a state EITC to offset the fact that the gas tax hits low- and middle-income taxpayers hardest. The state EITC was a key tool to ensuring that low-wage could keep more of what they earn and afford the costs of working, including gas and child care.  Reinstating a state EITC to ensure that the gas tax does not further increase the tax responsibility on working North Carolinians struggling to make ends meet is critical.”
Stay tuned.
NC Budget and Tax Center

Last week, the Senate approved a tax plan that would drastically reduce needed revenues and shift the tax responsibility downward, away from the wealthiest tax payers.

This tax plan would also reinstate the cap on the state’s gas tax, which is a revenue source that accounts for more than half of state revenues dedicated for transportation projects. If the plan passes, the cap would be in place for the current 2013-14 fiscal year that began last week, resulting in a $5 million loss to the transportation budget that supports road construction, road maintenance, and public transportation.

Five million dollars is a very small share (.2 percent) of the $2.8 billion transportation budget. The larger cause for concern is that budget writers are following the imprudent precedent set by lawmakers from both sides of the aisle who keep enacting short-sighted, quick fixes to the gas tax—rather than reforming the structure of the tax to smooth its volatility. Read More

Uncategorized

The good folks at the N.C. Budget and Tax Center released a new report today that explores the pitfalls of capping the state gas tax (an idea that both Governor Perdue and legislative leaders have proposed) and proposes a better way to make the tax more stable and predictable. Here are the main findings:

  • North Carolina’s transportation budget faces a funding gap. Since the Great Recession, North Carolina has not experienced gradual increases in revenue collections from the gas tax as generally experienced in pre-recession years. The purchasing power of construction and maintenance dollars has also eroded. Read More