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This is the fifth of a six-part blog series. (See Part 1, Part 2, Part 3, and Part 4)

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. 

How a supposed tax cut can still equal an overall loss

Bob and Sue are married with an infant and toddler. Bob teaches 2nd grade at the local public school and Sue stays at home to take care of their two young children. With Bob’s salary as a teacher, they make about $46,000 a year. They often feel like they’re struggling to afford the necessities and live paycheck to paycheck. They aren’t able to go out to eat or take trips with the kids, but they are able to provide the necessities.

Under the House tax plan, Bob and Sue would see their tax load go down by about $63, or about 2 percent compared to current tax laws. When the couple becomes aware of this slight reduction in their tax load, they aren’t very excited because they have also been following the state budget debate and know that their oldest child, who they thought would be eligible for Pre-K services, would no longer qualify due to budget cuts that would have to be enacted to pay for the tax cuts. Read More

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.

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.