Chris Fitzsimon: State tax changes backfiring

Published 12:00 am Thursday, April 16, 2015

Tax Day 2015 didn’t exactly turn out like state legislative leaders had planned.

Instead of a flurry of news stories featuring people thrilled to find out that they are paying less in state taxes thanks to the alleged tax cuts passed by the General Assembly in 2013, many of the reports included comments from senior citizens who are paying higher taxes because lawmakers ended the deduction for medical expenses.

Many stories also correctly pointed out that low-wage workers can no longer claim the state Earned Income Tax Credit, that parents lost their deduction for contributing to their child’s college savings account and that many small business owners are paying more this year because the 2013 tax changes repealed a business tax break passed in 2011.

Not the message the GOP spin doctors were hoping for.

The 2013 tax reform lowered income tax rates overall on individuals and corporations but also ended many deductions — and expanded the sales tax — resulting in many low-income and middle class taxpayers paying more. Not millionaires of course. They received a break of roughly $10,000 a year.

Senate leaders tried the best they could this week to counter the reality check for their Robin Hood in reverse tax plan, telling reporters that taxpayers have saved $2.4 billion over the last four years.

That includes the decision in 2011 not to continue a temporary sales tax increase passed by the Democratic majority to raise revenue to save education and other state services during the Great Recession.

Apparently Senate leaders believe that allowing a tax hike to expire on schedule is a tax cut. They didn’t mention their recent decision not to let a reduction in the state gas tax take place as scheduled in July — because that is a tax increase, however justified it may be.

And the vast majority of the 2013 net tax cut went to the wealthiest 1 percent of North Carolinians — with average incomes of roughly $1 million a year — the folks who don’t have to worry much about medical expenses or coming up with the money for college tuition.

Most of the rest of the people in the state, families who earn less than $84,000 a year, are paying more on average because of the tax changes and that fact became clear this tax season that ended Wednesday.

Legislative leaders better get their spin machine ready for another round of misleading rhetoric soon as the state budget debate heats up and they struggle to meet the state’s basic needs with at least $700 million less in revenue thanks to the 2013 tax cuts.

They are already admitting they can’t afford to give every teacher  and state employee a raise, much less restore some of the cuts in education that have left classrooms without textbooks and second-graders struggling to read without a teacher assistant to help them.

Gov. Pat McCrory’s budget included another round of cuts to the reeling university system and there is talk of slashing health care services and other safety programs again because there’s not enough revenue thanks to the tax cuts that McCrory initially insisted would be revenue neutral.

Last session lawmakers cut funding for a program that provides Meals on Wheels and other in-home services for seniors, some of the same folks who are now paying higher state taxes because they lost their medical expense deduction.  That’s impossible to defend.

It was not a good Tax Day this year for legislative leaders. And thanks to their decisions to give wealthy a tax windfall and raise taxes on most everybody else, things don’t look too bright for budget passage day, either.

Chris Fitzsimon is founder and director of NC Policy Watch, a progressive public policy think tank that is a special project of the N.C. Justice Center.