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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.

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Alexandra Sirota, Director of the North Carolina Budget and Tax Center and the state’s leading independent tax policy expert issued the following brief statement this morning after the House Finance Committee debated and approved legislation to overhaul North Carolina’s tax code:

“This tax plan will provide the wealthiest North Carolinians a tax cut while middle-class and low-income taxpayers pay more.

The only amendment accepted makes things worse — adding $525 million to the price tag and bringing the revenue loss each year to nearly a $1 billion.  Without this vital revenue, North Carolina can’t  make needed investments in our economy, our children’s education, the health of our seniors and the safety of our communities.”  

Click here for a fact sheet with more information on the legislation (HB 998).

NC Budget and Tax Center

Advocates of a state tax overhaul are doing their level best to distract attention from the central truth that the plan would raise taxes on North Carolinians earning less than $51,000 a year and hand a significant tax cut to the top 20 percent.

The authors of a Civitas Institute report—which advocates abolishing the state personal income tax and replacing most of the lost revenue with a higher sales tax on a wider variety of goods and services—acknowledge that low- and middle-income households would pay more since they spend more of their income on products subject to sales taxes than wealthier households do. But they claim that this concern is overblown. They use several arguments to justify the tax shift, none of which stand up to scrutiny.

One of their central assertions is that some low-income people get government benefits, which apparently means that people living in poverty can afford to pay for a tax cut for the rich. We doubt most people in North Carolina agree. The proponents of a higher sales tax greatly exaggerate the government benefits most poor people in North Carolina actually receive. To bolster their case, they cite services available to families in Pennsylvania and appear to assume that every household eligible gets all of the services. But this is simply not the case in North Carolina. The vast majority of poor people do not receive all the services they are eligible for, in part because there are not enough funds to allow that. Read More