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North Carolina GOP’s Regressive Tax Changes Could Incite Backlash at Polls

A wide-reaching and regressive overhaul of North Carolina's tax code, which went into effect last year, is being felt this tax season. Its political fallout may extend into 2016.

A wide-reaching and regressive overhaul of North Carolina's tax code, which went into effect last year, is being felt this tax season. Its political fallout may extend into 2016. Shutterstock

A regressive overhaul of North Carolina’s tax code, passed in 2013 by state Republicans, is beginning to hit home as residents prepare their tax returns in advance of the April 15 tax filing deadline. Democrats say the reaction to the changes could stir a revolt at the polls next year among low-income and middle-class voters.

The new tax laws, which were implemented last year by the state’s massive GOP majority, eliminated North Carolina’s tiered income-tax structure and established a flat rate for all taxpayers at 5.8 percent for 2014 and 5.75 for this year. The Republican tax plan also eliminated a variety of deductions for medical expenses, child care, college savings, and more.

The earned income tax credit, which is an income refund for low-income workers, was also axed in the tax system overhaul.

Brandon Britt, owner of three Liberty Tax Service franchises in North Carolina, told the Charlotte Observer that low-income taxpayers are having “sticker shock” when they see how much their tax refunds have been dramatically reduced.

“A lot of the lower income people who were used to getting refunds of, say, $100, $200, $300 from the state of North Carolina are ending up owing the state of North Carolina $100 or $200,” Britt told the Observer. “I am seeing a larger percentage of my clientele owing the state of North Carolina than has happened in the past.”

State legislators are hearing from their constituents about these tax changes, said Cedric Johnson, public policy analyst at the North Carolina Justice Center, an organization that advocates for economic and social justice in the state.

“The elimination of the medical-expense deduction has been burdensome to seniors,” Johnson told Rewire. “And the elimination of the earned income tax credit is causing big problems. The plan benefits the wealthy by eliminating the progressive tax rates, lowering corporate income tax rate, and expanding the sales tax base to include selected services.”

Johnson said that North Carolina, which is legally required to balance the state budget annually, could be looking at a “worst-case scenario” budget deficit this year of $1 billion thanks to the GOP’s regressive tax changes, forcing serious cuts in education, health care, and public safety. These, he said, account for 85 percent of the state budget, leaving little room to cut elsewhere.

The sweeping tax changes, which have affected a wide range of North Carolina residents, could have an impact on next year’s election, Democrats and other political observers say. When it became law in 2013, the tax overhaul was trumpeted as a success by Republicans in the North Carolina state legislature and by Gov. Pat McCrory.

“The tax changes are definitely having an effect on middle-class families,” said Ford Porter, a spokesman for the North Carolina Democratic Party. “We’re seeing families not getting refunds that they used to count on, seniors not being able to deduct medical expenses, and middle-class families paying more taxes. All this is the result of Gov. McCrory and his allies in the legislature.”

“Gov. McCrory has repeatedly put the interests of the ultra-wealthy and out-of-state corporations first,” Porter told Rewire. “What middle-class families have seen is the governor raising their taxes while not creating good new jobs. They’ve seen cuts in education that have hurt our students’ ability to compete in the global economy. And thanks to Gov. McCrory, they are seeing other states start to pass us by. Ultimately, this comes down to priorities. And I think voters will want to change priorities here in Raleigh by electing leaders who will put the middle class first.”

Porter said the voter backlash might affect not only McCrory, who’s up for re-election next year, but numerous 2016 campaigns, including that of Republican Sen. Richard Burr, as well as state house and senate candidates.

“The conversation voters will be having will focus on who’s doing most to grow the middle class and create jobs,” Porter said. “It will be a large conversation that will encompass a lot of races.”

McCrory’s office did not return a call and email for comment, but there are signs Republicans are concerned about the political fallout of the tax overhaul.

The Charlotte Observer reported that GOP state Rep. Rick Catlin has been hearing complaints from his constituents and introduced a bill to reinstate the deduction for medical expenses.

“It’s a major impact on our senior citizens,” Catlin told the Observer. “It’s my job to be fair to all taxpayers, so I’m trying to restore that deduction.”