By Mary Bethel and Helen Savage
RALEIGH -- After months of debate, both the state
House and Senate gave final approval to a compromise tax overhaul plan (House Bill 998) last week, and it has been sent to the Governor for his signature. The overhaul plan would eliminate the current three-tiered personal income tax structure and set a flat rate at 5.8 percent in 2014 and 5.75 percent in 2015. It would allow a standard deduction of $15,000 for married taxpayers filing jointly, $12,000 for heads of household and $7,500 for single or married taxpayers filing separately. Deductions previously allowed from retirement income - $4,000 for government pensions (except for public pensions protected under the Bailey court decision) and $2,000 for private plans – are eliminated. Deductions for charitable contributions would continue; however, a cap of $20,000 would apply to mortgage interest and property tax deductions.
Under the approved plan, the corporate income tax would drop from 6.9 percent to 6 percent in 2014 and would drop to 5 percent in 2015. Additional reductions are possible in 2016 and 2017 if the state meets revenue targets. The plan continues a sales tax exemption for non-profits but caps the exemption at $45 million. The legislation approved would also expand the sales tax to cover service warranties and amusements including movies, and would apply fully to manufactured housing. The 3 percent franchise tax on electricity and natural gas would be eliminated and replaced with a 7 percent general sales tax , effectively a 4 percent rate hike in monthly bills.
During the course of the tax overhaul debate, AARP North Carolina was very active in working for tax legislation that was fair for all North Carolinians and protected the financial well-being of our members. Particular areas where we focused our advocacy efforts included:
- Protecting retirement income – especially opposing the taxing of Social Security benefits.
- Opposing the taxing of prescription drugs and the additional taxing of food.
- Opposing cuts to local government revenue which could result in counties and municipalities resorting to increased local property taxes which could particularly impact homeowners on limited or fixed incomes.
- Advocating that tax reform should generate sufficient state revenue to pay for essential core services and infrastructure needs of the state.
Final action taken by the legislature on the tax plan does not tax Social Security benefits or prescription drugs and taxes on food would not be increased. Also local revenue would not be decreased under this plan.
AARP remains concerned that the tax plan passed will result in a loss of $2.4 billion in state revenue over the next five years. In the coming years, state and local leaders will likely have to reduce or eliminate programs and services and cut maintenance and investment in infrastructure. As we have reported before, services for seniors which help them stay in their homes such as home delivered meals and in-home aide services already have burgeoning waiting lists in most counties in the state. A reduction of revenue of this magnitude at the same time that our state’s older population is growing and the cost of service delivery is increasing will result in even more people not being able to get the help they need.