CHAPEL HILL – Chapel Hill Mayor Mark Kleinschmidt says you may start seeing more people in need of services that the state no longer provides for due to the recent tax reform passed by the North Carolina legislature last Wednesday.
He says replacing the three-tier progressive income tax with a flat 5.8-percent tax will hurt Chapel Hill’s lower class.
“For the people of our community, it’s not going to be helpful,” says Mayor Kleinschmidt. “This is not reform that is making our state a better place. It’s not reform that’s helping to lead to the provision of higher quality government services, services that people rely on, services that the private sector and nonprofit sector are not able to provide. We’re actually pushing the burden down to people of lower incomes and relieving those people of higher incomes from paying their fair share.”
Statistics show that Chapel Hill is expected to gain more than six million dollars in additional revenue over the next six years due to the tax reform legislation.
Mayor Kleinschmidt says even though town revenues are not expected to show a huge decline, the people will still face a burden.
“As this tax reform package continues to add this increased burden on people with lower income, that really just drives the need for high quality services and providing those services down to local government,” says Kleinschmidt. “While the town revenues may be held somewhat even, here in our local community we’re going to see more and more people in need of services the state’s not providing for anymore because they’re not going to have the same revenues that they had previously.”
Mayor Kleinschmidt says that taxes that are local revenue are collected by the state. He says there was fear that the North Carolina government will keep that revenue instead of returning it to Chapel Hill. But, he says that is not the case for the fate of local revenues, so Chapel Hill does not need to change its budget for the coming year.
While writing the renovated tax code, legislators hosted the League of Municipalities’ Town Hall Day on March 27, when the first drafts of the tax reform legislation were made public. District Days! was held for three months starting in April with the goal to bring small groups of government officials to Raleigh to collaborate with leaders in the legislature and lawmakers.
Paul Meyer, Director of Governmental Affairs for the North Carolina League of Municipalities, sent an e-mail to Roger Stancil, Town Manager of Chapel Hill, emphasizing how voicing opinions to legislators made a difference in the tax reform and Chapel Hill’s town revenues.
Mayor Kleinschmidt says he agrees that having relationships with lawmakers to influence legislation is very important in creating new policies.
“I maintain very strong relationships with every member of our local delegation and members of both houses outside of Chapel Hill,” said Kleinschmidt. “Those kinds of relationships, being able to about policies that have the potential for impacting us is an important part of the process. Just as the people of Chapel Hill are aware that participation in local government can help improve those decisions, the same is true at the statewide level.”
And he says he will not credit any positive economic effects to the tax reform.
“If there’s a positive effect in our economy, following this tax reform package passing and following this budget passing, it won’t have anything to do with this,” said Kleinschmidt. “It will only be because the rest of us on the ground are working hard to create corrected policies and local support to correct for the problems that this budget and this tax reform package are making for North Carolinians.”http://chapelboro.com/news/state-government/kleinschmidt-comments-on-tax-reform-for-chapel-hill-residents
Photo by Angie Newsome
CHAPEL HILL – Wednesday afternoon, the North Carolina State Legislature approved the Tax Simplification and Reduction Act, sending it to Governor Pat McCrory for approval.
The bill reduces corporate income tax and replaces the progressive three-tier personal income tax system with a flat 5.8-percent tax for North Carolina residents.
By cutting the corporate tax, the Republican legislature believes that businesses will hire more employees, stimulating economic growth.
House Representative Verla Insko says she does not support this claim. Insko references the Congressional Budget office’s 2012 study that reviewed 65 years of data on job creation. She says the research did not show any proof that cutting taxes for the wealthy creates jobs.
“What attracts employers to North Carolina is a really strong infrastructure,” says Insko. “All the evidence indicates that those things come before even tax incentives. Because we’ve cut the budget in the last several years, money for our other infrastructure is being leveled off. You have to make investments in your infrastructure in order to plan for the future. In my judgment, we’re really going in the wrong direction.”
Infrastructure employers are seeking includes roads, broadband, access to research universities, good public schools, and an educated work force. Insko says without these features, North Carolina will be far less appealing to businesses.
The national unemployment rate is 7.6-percent. North Carolina’s unemployment rate lies a full point above that. Insko says North Carolina has already cut a lot of teachers and state employees, adding to the high unemployment rate.
The corporate tax rate will decrease from its current 6.9-percent to 5-percent by 2015, and possibly to 3-percent in 2017. Insko says many corporations find loopholes and tax exemptions to avoid paying taxes. Only the highest corporations pay taxes, and they make up only 6-percent of the budget.
She says the personal income tax will have the most impact on North Carolina residents.
“Over a period of five years, it’ll actually take out 2.5 billion dollars out of our revenue stream,” says Insko. “Our Medicaid budget is growing every year. Our education budget grows every year. There are just no more places to cut without really impacting the services that we provide for people.”
Few states had a progressive, three-tier personal income tax similar to North Carolina’s. Insko says the Republican legislature is looking to the American Legislative Exchange Council, which favors a flat tax, for direction.
Small businesses pay their taxes as personal income taxes, so they will face tax increases. Previously on the first $50,000 a small business made, the business owner would not have to pay taxes. With the passing of this bill, taxes will be imposed upon that initial revenue.
“A lot of our small businesses struggle,” says Inkso. “When the economy’s like this, people cut back on their purchases. It affects a lot of our small businesses. That $50,000 tax credit was really essential in keeping our small businesses going; that’s going to go away. A lot of our small businesses are going to be getting a significant tax increase.”
The bill also takes away a deduction on retirement income. Therefore, seniors will have three to four thousand dollars less annually for expenses.
Due to the expected decrease in tax revenues, budget writers are reevaluating the budget and making further cuts, including a small raise for state employees.
“If it happens that the economy grows, then a growing economy will pour new revenue into the revenue department,” says Insko. “But that’s not going to happen this year. This bill was not revenue neutral. There have been proposed budgets coming through and now we have a tax bill that’s passed. We have a better estimate of how much revenue is going to come in next year. It is below the estimate that the current budget was built on.”
Insko says budget writers are having difficulty reworking the budget. At the earliest, she says she’s is expecting to receive the budget by late next week.
The legislature justifies the bill as a tax cut, but Insko says it will give the middle class less buying power, pushing it into the lower class. She says the gap between the wealthy and the poor is widening.
“To have a tax cut at all, would be for people who make more than $230,000 a year,” says Insko. “If you look historically over what’s happened to our middle income and lower income working families, they’ve lost buying power over the last forty years. That’s a trend that’s continuing. The great American consumer drives our economy. I think that’s one thing that’s kept our economy stagnant is that people just don’t have any extra money.”
The need to rewrite the tax code came from North Carolina moving from a manufacturing to a service economy. When the tax code was written in the 1930s, people bought mostly products. Now, North Carolinians are consuming more services, says Insko. Across the nation, three to four hundred services are taxed, but in North Carolina, only around thirty receive a tax. Therefore, Insko says expanding the sales tax seemes like a necessary measure.
If the Tax Simplification and Reduction Act had not passed, Insko says there would be more benefits for North Carolina.
“I hoped that it wouldn’t pass,” says Insko. “If this bill had failed, we would have more revenue coming in. State employees would’ve maybe gotten a raise this year.”
Overall, Insko says more people will face an increase in taxes and decrease in buying power, depressing the North Carolina economy.http://chapelboro.com/news/state-government/nc-tax-reform-passed
RALEIGH – With a signature by Governor Pat McCrory, the Tax Simplification and Reduction Act will be the first change to the tax code in about 80 years.
Wednesday, the House and Senate needed one more vote on the Tax Simplification and Reduction Act before it was sent to Governor McCrory for a signature. Last Monday, North Carolina’s legislature unveiled the act. On Tuesday, the House and Senate tentatively voted on the bill, with strong GOP approval and little liberal support.
When the tax code was written in 1930, North Carolina was based on a manufacturing economy, but as the state has progressed, it has evolved into a service economy. North Carolina only taxes about 30 services, which is low compared to most states.
North Carolina Senator Ellie Kinnaird says the tax code contains so many loopholes and exemptions that she compares it to Swiss cheese. She says she thinks that expanding the sales tax would be more effective than lowering corporate and individual income taxes.
“They should have, and they didn’t, completely rewrite the tax code to extend the sales tax to many, many services, but then lower the sales tax rate way down,” said Kinnaird. “That would’ve given us a more accurate reflection of revenue based on what our economy is than what they did instead. They decided to lower the other two taxes, that are the main sources of revenue, which is the individual income tax and the corporate income tax.”
The legislature removed the estate tax and Earned Income Tax Credit, which Senator Kinnaird says kept about half a million working poor from falling into a deeper financial struggle.
“Instead of doing tax reform, they’ve put us into a position where we have greatly disadvantaged the middle and lower classes to the advantage of people who are at the top,” said Kinnaird.
Instead of a three-tier personal income tax system, the legislature is instituting a flat tax of 5.8 percent by 2014. With the three-tier personal income tax system, the wealthier people pay a higher percentage than the middle and lower class. With the 5.8-percent flat tax, everyone will pay the same percentage, which Senator Kinnaird says will impact the lower and middle classes much more than the wealthy.
“Now, we’ve taken away the graduated income tax. We have a flat tax, which will be 5.8% and finally 5.75%,” said Kinnaird. “Well this means that the same rate is charged to a person making $30,000, $300,000, and $3,000,000. That’s just not fair.”
Also starting in 2014, tax-free holidays for back-to-school shopping and Energy Star appliances no longer exist. Senator Kinnaird says this change discourages the middle and lower classes from buying school supplies. Buying less items leads to less tax revenue, which she says hurts the economy overall.
The legislation raised the tax on mobile and manufactured homes by thirty percent, which Senator Kinnaird says also hurts the lower class that often lives in these homes.
She says small business will take a toll from the income tax hike, as well.
“Small businesses are the backbone of our economy; they drive our economy,” said Kinnaird. “300,000 businesses are now going to be taxed more. A small business owner pays taxes as though they were his individual tax, like his income, and that means that he’s going to have a huge tax bill because that’s not going to be changed.”
With the tax cuts, the government will raise 500 million less dollars, adding up to 2.5 billion dollars over the next five years. Republican legislature members are assuming that the business boom will fill the loss, but Senator Kinnaird says she thinks this will create a devastating hole in the economy.
“It’s not going to balance,” said Kinnaird. “The governor said he had to have a neutral, revenue neutral, which means that it doesn’t bring in anymore or lose anymore than the present system, but that isn’t what’s going to happen. We’re going to have a big hole.
Corporate tax rates are lowering to from the current 6.9 percent to five percent by 2014. Eventually, Senator Kinnaird says, the Republican representatives and senators are claiming that a reduction in taxes will encourage businesses to hire more people, relieving the high unemployment rate. Senator Kinnaird discredits this claim. She says small businesses cannot afford to hire any more employees under the tax reform, but larger corporations will continue to employ people, as normal.
“They’re counting on the economy,” said Kinnaird. “They call them the job creators, the wealthy are called the job creators. In 2008 when the Bush tax credit was started, they didn’t create new jobs. Here we are, no jobs created. When they talk about job creators, that’s just false. Unfortunately, all of the middle class and lower class people are going to pay for it.”
After the many tax cuts, Senator Kinnaird says the bill will unfairly benefit the wealthy, while hurting the lower class. She says the holes the tax reform creates in the economy cannot even out; and she compares it to a reverse Robin Hood, take from the working poor and give to the wealthy.http://chapelboro.com/news/state-government/senator-kinnaird-legislatures-tax-reform-hurts-mid-low-classes-economy