N.C. tax breaks in the works

But the question is: what kind? Plans contrast in House, Senate

The economy is tanking and elections are around the corner, so state lawmakers are eager to provide North Carolina residents with a bit of tax relief.

If only they could agree on who is most deserving.

If you earn less than $30,000 a year and struggle with gas and grocery bills, you'll probably line up behind the breaks being proposed by the state House.

If you're in line for a gift of more than $12,000 this year, you might be pulling for what the Senate is pushing.

That's the strongest contrast between both chambers' tax breaks, which are now a key part of negotiations on a budget that's expected to exceed $21 billion. Both chambers have agreed to $50 million in tax relief this year but differ greatly on how to do it.

The House's package is geared toward poorer people. It would expand an earned income tax credit for roughly 840,000 low- and moderate-income families, provide a property tax break for veterans fully disabled in service, and expand a tax credit that small businesses receive for providing health insurance to employees.

"Our thinking was the economy is not great," said House Majority Leader Hugh Holliman, a Lexington Democrat. "People out there are paying a whole lot more for gas and groceries, and we wanted to find a way to address that as best we can."

The Senate's package also provides help to lower-income households, particularly with a tax break on home heating fuels. But much of the relief would go to those who could receive sizable gifts from relatives or to small businesses caught up in tax disputes with the N.C. Department of Revenue.

State Sen. David Hoyle, a Gaston County Democrat and Finance Committee co-chairman, cited fairness as the rationale for much of the Senate's tax breaks. People who use kerosene and gasoline shouldn't have to pay more than those who heat their homes with natural gas or electricity, he said. North Carolina is one of only four states that have a gift tax, and incorrect information from revenue officials has led to heavy bills for interior decorators, fence makers and other small-business people.

"This is really bad," Hoyle said. "North Carolina is better than this."

On Thursday, the state Senate approved its $21.4 billion budget proposal, 31-14. The House, which earlier this month passed a $21.3 billion proposal, quickly rejected the Senate spending plan. That sets up negotiations for a compromise budget.

Hoyle is skeptical of the earned income tax credit, which first became state law last year. It refunds 3.5 percent of what eligible families would receive in a federal credit on their total tax liability, and the House would expand that to 5 percent.

The credit is refundable, which means even if a family paid no income tax it could still receive the tax break for all the other taxes paid. Hoyle said he worries some might take advantage.

"Why would we want to expand something before we learn whether it's working yet?" he said.

Rep. Paul Luebke, a Durham Democrat and House Finance Committee co-chairman, said expanding the credit provides quick relief to those who need it most. He doubts the credit will be subject to massive abuse.

"The federal program has been a success in helping low-wage families since Ronald Reagan was president," Luebke said.

Luebke said the gift tax repeal isn't a House priority. Opponents say it will mostly help the rich, and possibly allow them to dodge estate taxes as well.

Giving it away

State law currently allows someone to give as much as $100,000 in money or property in his lifetime to another individual without paying a gift tax. Meg Gray Wiehe, a policy analyst for the N.C. Justice Center, a nonprofit that advocates for the poor, said few low- or moderate-income people would exceed that threshold and end up paying the tax.

Wiehe said eliminating the tax could help the wealthy give expensive assets to their children before they die, escaping or reducing estate taxes. "You could give it away -- a sort of deathbed giveaway," she said.