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

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 demonstrate that middle-, fixed- and low-income taxpayers would lose under this plan while the wealthiest will gain.

All that glitters is not gold

Ms. Grace is a 67-year-old retired North Carolina resident who enjoys spending time with her grandkids and volunteering in her community. Gracie, as her neighbors call her, lives alone and receives around $12,000 in taxable income, which supplements her social security benefits and helps pay for her monthly medical expenses and other necessities.

Under the House tax plan, the amount of income and sales taxes paid by Gracie would increase, about 6 percent overall, compared to what she would pay under current tax laws. This increase in tax load is a result of the tax plan expanding the sales tax base to cover more goods and services as well as the elimination of the additional standard deduction allowance provided to elderly tax filers. Paying more in income and sales taxes—along with annual inflation— would decrease the amount of money available for Gracie to remain self-sufficient and ensure that her basic needs are met. As Gracie follows the current tax reform debate, she listens more closely for further insight regarding how the competing tax plans would impact individuals such as her. While playing with her granddaughter and chatting with her son about the potential impact of the House tax plan on her she states, “All that glitters is not gold.”

After the House Finance committee increased the cost of the House tax plan to around $864 million, the House Appropriations committee decided today not to debate it. This decision highlights the trouble the state will have paying for the huge revenue loss caused by this bill. By cutting income tax rates and expanding the sales tax base to include more goods and services, this approach would shift the tax load to low- and middle-income taxpayers, cut taxes for wealthy individuals, and hurt the state’s ability to make vital investments in the state’s economy and quality of life.

There are some things lawmakers could do to lower the cost of the House bill, including:

  • Reducing the personal income tax cut and maintaining the current progressive rate structure which asks wealthy people to pay a higher share of their income than low-income people. The House tax plan replaces the current progressive income tax structure with a flat 5.9 percent income tax rate, costing $1.6 billion. Maintaining a progressive income tax results in a fairer tax system and will provide additional revenue.
  • Closing corporate income tax loopholes. The House tax plan does little to reduce tax loopholes, which cost the state around $2 billion each year, according to the NC Department of Revenue. Closing loopholes would simplify the state’s tax code and raise additional revenue.
  • Collecting sales tax on more goods and services. The House tax plan expands the sales tax to a limited number of services not currently taxed, but it could include even more goods and services. However, this option would hurt low- and middle-income taxpayers, who already pay a larger share of their income in state and local taxes compared to higher income taxpayers and therefore would require a stronger state Earned Income Tax Credit.

As the proposed House tax plan continues to make its way through the legislative process, lawmakers will make choices that will impact the lives of all North Carolinians. The House tax plan in its current form is the wrong choice for the state.

This is the second of a six-part blog series. (See Part 1)

What would the House tax plan mean for North Carolina taxpayers? In these blog posts, 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.

Who really benefits from House tax plan?

Angela and Todd live in the coastal region of North Carolina and the married couple has two kids, one which has a disability. Todd works as an assistant manager at a manufacturing plant and Angela is a stay-at-home mom and cares for their disabled child as well as their 3-year old son. Angela started a home-based hand crafting business last year and together the couple earns around $41,000 in income.

Under the House tax plan, this household would see its tax load increase compared to what it would pay under current tax laws. Under the House tax plan, elimination of the personal exemption allowance would increase the family’s taxable income by about $4,000 and expanding the sales tax base to include  more good and services means the couple would also spend a larger share of its income on sales taxes. As the couple works to meet their family’s needs, they wonder who actually benefits from the tax plan that is touted as a great thing for North Carolina.

What would be the measure of success if HB 786, or the RECLAIM NC Act, went into effect?

If just one third of North Carolina’s undocumented population were to get a driving permit or ID under it, would those who are pushing for the driving privileges offered in this bill still be in favor of it?

As it’s written now, HB 786, or the RECLAIM NC Act, will likely exclude seasonal workers from getting a driver permit. It will exclude anyone who can’t prove they have lived here for at least a year and haven’t been here before April 1, 2013. And it will exclude anyone who can’t afford to front a year’s worth of insurance ahead of time.

And if anyone doubts that many undocumented immigrants will either choose to not get the permit or be unable to get it, just look at Utah.

Just over one third of the estimated 110,000 undocumented people in Utah have gotten their driving privilege, which has a more lenient six month residency requirement than North Carolina’s one year requirement, and Utah’s doesn’t exclude everyone who moved into the state after a certain date, as North Carolina’s proposal does.

Like the proposal in North Carolina, Utah’s permit must be renewed annually. In 2012, just under 37,000 people of the estimated 110,000 undocumented in Utah applied for the permits, according to the Salt Lake Tribune.

Even after subtracting Utah’s estimated 13,000 undocumented youth between ages 5 and 30 who would be eligible for the Obama designation of Deferred Action for Childhood Arrivals (which includes just about everyone who isn’t old enough to drive or folks who now can get a regular drivers license), we’re still at just 38 percent of Utah’s estimated undocumented immigrant population who has accessed these privileges.

Utah used to issue driver permits to undocumented immigrants that looked mostly like regular drivers licenses, but in 2010, after Arizona passed its infamous SB1070, Utah’s permit included language to make it clear the holder was in the country unlawfully. The permit also includes biometric information, like what North Carolina is proposing.

The driving privilege changes in Utah happened independent of Utah’s own omnibus anti-immigrant bill. That law has been stopped from going into effect with an injunction that still hasn’t been lifted.

If that law does go into effect, then Utah’s undocumented but legal drivers could likely become driving targets because the card is an admission of one’s status.

Rep. Stephen Sandstrom, the architect of Utah’s Arizona-style bill, acknowledged that “The driving privilege card will, in an ironic way, be absolute admission that you are subject to the provisions of this bill,” he said in the Deseret News in August, 2010.

In North Carolina, the Arizona bill and the driver permit are part of the same bill, and, as immigration lawyer Marty Rosenbluth of the NC Immigrants Rights Project wrote in an open letter to legislators, that same “ironic” admission of status could get a lot of people in trouble.

North Carolina’s version of the bill does say that holders of the restricted driving permit cannot be held for immigration reasons only. But it doesn’t stop people with the permit from being held on minor arrestable offenses that might lead to detection by ICE.

“With the restricted drivers permit, people who are carrying them will now have proof of their immigration status in their pocket,” Rosenbluth wrote, adding, ” For cases like my Jackson county cases where ICE was collaborating with local law enforcement, ICE will have now have all proof they need to complete their deportation.”

If, like in Utah, just one third of the undocumented population gets the driving permit, then the other two thirds can be held after a lawful stop for up to two hours to investigate immigration status. Those caught driving without a license can have their car seized and possibly forfeited unless they can produce an expired license.

Also, it’s unclear if  North Carolina’s HB 786 would allow the federal government to obtain the immigration information provided by drivers’ permit applicants from the state DMV. The information could also fall into the hands of an overzealous state employee or be inappropriately leaked, like what happened in Utah in 2010

Participants in community forums the Justice Center has organized have been very leery of sharing their sensitive immigration information with the DMV for these reasons.

Nowadays, though, it seems Utah’s chief architect of the omnibus bill is suffering from a hate hangover. Sandstrom, the former anti-immigrant zealot, has put a face to undocumented immigration and now wants Utah to repeal its Arizona copycat provisions.

This returns us to the question of who will think N.C.’s RECLAIM NC Act was a success. If Utah is any indication, even sponsors will have their regrets of proposing such a punitive and short-sighted measure.

The authors of RECLAIM NC say they want to ferret out the “hardened criminals” from the “good” undocumented immigrants. HB 786 isn’t an effective way of doing that.  Immigration is too complicated for such a black and white approach.

North Carolina can do better.