House Tax Reform Plan Passed Out of Finance Committee | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an associate editor to the Carolina Journal, John Hood Publisher.

Cap on mortgage interest deductions, local property taxes removed

    RALEIGH     A House GOP-sponsored tax reform package got out of that chamber's Finance Committee on Tuesday, but not before it was tweaked to remove a cap that had been placed on deductions for mortgage interest, local property taxes and charitable contributions.

    The committee, on a tie vote, also defeated a proposed amendment that would have ended the tax incentives the state gives to companies that produce films in North Carolina.

    The bill, sponsored by Rep. David Lewis, R-Harnett, has now been sent to the House Appropriations Committee for further review. It would establish a flat income tax rate of 5.9 percent. Currently, the rate varies from 6 percent to 7.75 percent, depending on income.

    It would also phase in a five-year reduction of the corporate income tax rate, which is currently 6.9 percent. It would drop to 5.4 percent by 2018. The bill would broaden the sales tax to include some services, such as repair, maintenance, and installation services, along with service contracts.

    Rep. Julia Howard, R-Davie, who is a Realtor and an appraiser, pushed for and got an amendment to the bill that would remove a $25,000 cap on itemized deductions for mortgage interest, local property tax, and charitable contributions.

    "When people bought homes years ago, they understood that they could take off mortgage deductions," Howard said. Lewis argued against Howard's amendment, saying it went "a little bit too far."

    "Nearly 80 percent of the filers in the state take our standard deduction anyway," Lewis said.

    Lewis said the change would lower state revenues by $525 million in the first year, and more than $2 billion over the next four years.

    "It would be good to get a tax cut that big," Lewis said later in the day Tuesday. "Right now, nobody seems to know how to do it." He said the House Appropriations Committee will review it "and see what we can do."

    That meeting was scheduled for 8 a.m. today.

    The Finance Committee also discussed a proposal by Rep. Mike Hager, R-Rutherford, that would have ended tax credits for the film industry. That effort failed on a 15-15 vote.

    Hager said it may make people feel good to have a movie such as "Iron Man 3" made in North Carolina, but the numbers are not there to suggest the credits are a revenue benefit to the state, he said.

    Rep. Ted Davis, R-New Hanover, said that the film tax credits should stay.

    "I can't think of a better clean industry for this state to have than the movie industry," Davis said, adding that it would likely result in the movie industry leaving Wilmington if it didn't pass.

    A report by legislative fiscal analysts estimated that under most sales and income tax scenarios, more than 80 percent of taxpaying households in North Carolina would pay less state tax under the House tax reform plan than they would under the current tax code.

    The exceptions would be for married filing jointly with no children, with $40,000 to $100,000 in income, and married filing jointly with two children with $60,000 to $100,000 in income, totaling about 18 percent of taxpaying households in North Carolina.

    Married filing jointly with two children taxpayers in the $60,000 to $100,000 range would, on average, pay $20 a year more in taxes than they currently pay, according to the analysis.

    Married filing jointly with no children would, on average, pay $9 a year more in the $40,000 to $60,000 income range, and $43 a year more in the $60,000 to $100,000 range, according to the analysis.

    Taxpayers in other scenarios would pay less, according to the analysis. For example, married filing jointly with no children in the $20,000 to $40,000 bracket would pay $102 less, while a head-of-household filer with one child in that same income bracket would pay $264 less under the plan.