Blog

Tea Party Organ Calls NCGOP’s 2013 Tax Plan A “Tax Increase”

According to a column in the Tea Party rag, The Beaufort Observer, Gov. McCrory and the NCGA Republican’s tax reform will result in tax increases on many North Carolina families.

When is a “tax cut” a tax increase?

Many among us are going to be in for a real shocker when they file this year

Last year North Carolina passed what was called a “”Tax Cut”". Allow me to give you some detail of this cut. Under the old law the individual tax return (D-400) had three tax rates, six, seven and seven and three quarter percent. The new “cut” lowered the rate to a single rate of 5.8%, that’s a cut right? Well for some. Follow along. If you had taxable income over $100,000.00 and your rate dropped from 7.75 to 5.8% you had a cut of $1,950.00. Nice almost two grand. Let’s look a bit closer. I am going to use an example of a friend of mine who has a disabled wife, he spends about $30,000.00 per year on medical expenses for her. Under the new “Tax Cut”, he cannot deduct medical expenses. Last year he would have been able to deduct this, if I assume he was in the 7.75% bracket that was a savings of $2,250.00. Where is his “Tax Cut”? Let’s not forget he is drawing a pension, under the old law he would have excluded 2,000.00 from income, the 2014 “Tax Cut” took that deduction away. So pre “Tax Cut” it saved him $155.00. After the “Tax Cut” zero. So this one taxpayer went from a total tax in 2013 of $4,548.00. So with his 2014 “”Tax Cut”", his total tax will be $5800.00 or an increase of $1,252.00.

How about the “Tax Cut” for small business owners. For tax year 2013 small business owners got a deduction of up to $50,000.00 off their taxable income. Again I will use a couple of real examples. Taxpayer A has a small business where he works his tail off and makes $35,000.00 from his business. Last year he would have had zero taxable income for North Carolina. For 2014 his “Tax Cut” results in a tax of $1160.00. Taxpayer B owns a small business with his wife. Employs about six people. His business is doing pretty well, so his income 2013 was $200,000.00. With the small business deduction 2013 their tax would have been $5948.00 with the “Tax Cut” their 2014 tax will be $10,730.00.

Now let me get you really upset. Taxpayer C is require to buy health insurance or be fined under Obamacare. So after being forced to buy something he may not want, he will not be able to deduct it from his North Carolina tax return. This taxpayer is paying $1800.00 per month for insurance with all of his other medical expenses let’s assume after the limitation of deductible his medical expense are $21,600.00 for just the insurance. When comparing the pre “Tax Cut” numbers with the 2014 reduced rate, he would experience a tax increase from that one lost deduction of $1,253.00.

How about folks that drive a lot of miles as an employee. Say like a salesperson who is not reimbursed by their employer. Many of these taxpayers drive 20,000 miles per year. That would have resulted in a deduction on schedule A of about $11,000.00. With the “Tax Cut” their tax increases by $638.00.

So maybe this “Tax Cut” is for the family? Taxpayer D is married and has three children makes 55,000.00 per year. Under the old tax code his family would have had a tax of $2,336.00 with the 2014 “Tax Cut” their total tax would be $2,320.00. Yeah a “Tax Cut” of $16.00. But they better not have any more children, because if they had four kids it would have resulted in a tax increase.

Some of the other deduction and credit have been impacted as well. You can no longer deduct Personal Property Taxes, Real Estate taxes and mortgage interest combined cannot exceed $20,000.00. If you pay child care expenses you no longer get a credit for that expense. The state earned income credit is also gone.