For people who talk so much about taxes, North Carolina’s Republican lawmakers don’t seem to know much about them.
They started in 2012 by exempting the first $50,000 in small business income. That led to a windfall for many small but very profitable operations, such as law firms. That mistake was quietly rescinded when Republicans made a broader attempt at changing the tax code, again purportedly to stimulate the economy.
The new changes involve tax cuts that favor high earners and corporations. North Carolina’s economy is recovering along with the nation’s economy, but there’s no sign of corporations racing to relocate to North Carolina or wealthy “job creators” creating jobs. Much of the corporate savings went to shareholders, many of them out of state. Rich people put their tax savings in the bank next to the bundle they’ve made off a record-setting stock market.
Meanwhile, tax revenues are running below projections, the state is struggling to meet basic education needs, most state employees apparently will go another year without a raise and many retired people are discovering that the tax cuts are a tax hike. The changes reduced exemptions for pensions and eliminated the deduction for medical expenses. As they do their taxes this spring, seniors are howling when they reach the bottom line.
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John E. Ramsey, a retired CPA from High Point, knows something about taxes. And he knows he’s getting hammered by Republicans who crowed about giving North Carolinians “the largest state tax cut in history.”
In a letter to The News & Observer, Ramsey wrote that many seniors paying for drugs, long-term care and Medigap insurance can easily spend $10,000 or more on medical expenses. But the tax changes barred those expenses as deductible and instead raised the standard deduction for seniors by $2,800. That, Ramsey noted, amounts to a hefty tax hike for older people with high but not unusual medical expenses.
“I plugged the actual numbers from our 2013 return into the new 2014 form,” Ramsey wrote. “Our tax for 2014 would be over 30 percent higher. In the next election, I think I’ll vote for Democrats.”
The prospect that Republican-leaning seniors may vote their lightened pocketbooks in 2016 has more than a few Republicans worried. State Rep. Rick Catlin, a Republican from retiree-heavy Wilmington, is sponsoring legislation to restore the medical expense tax deduction.
“While we were intending to lower the taxes on all citizens, senior citizens got their taxes raised,” Catlin said.
Actually, that’s not quite right, says Cedric Johnson, public policy analyst for the N.C. Justice Center’s Budget and Tax Center. He says the great majority of North Carolina taxpayers, regardless of age, are paying more.
“Taxpayers making under ($67,000), which is around 80 percent of taxpayers in North Carolina, will, on average, see their taxes increase under the tax plan,” he said.
And while most people are paying more, Republican tax changes will cost the state more than $5 billion over the first five years as the tax burden is reduced for the top 20 percent of taxpayers.
That’s an outrage, but for most Republican lawmakers it’s not a concern so long as the tax burden shifts toward low-income people who are unlikely to vote for them anyway. But seniors who favor Republicans and are armed with sharp pencils are sending a shiver through the GOP. Expect the medical deduction to return.
But the state’s Earned Income Tax Credit that helped the working poor and was claimed by nearly a million taxpayers was allowed to expire in December 2013. Those who lost that tax benefit won’t see it brought back.