Breaking down the 2013 tax package

Most measured assessments of the deal lawmakers and Gov. Pat McCrory reached this year say that it is a first step on the road to modernizing North Carolina's tax structure, but it does not achieve the sweeping reform at which lawmakers had originally aimed. 

“We applaud Gov. McCrory and members of the General Assembly for taking an important step towards real tax reform in North Carolina," said Rollin Groseclose, an accountant and member of the North Carolina Association of Certified Public Accountants, which has been evaluating different versions of the tax reform bill.

McCrory and legislative leaders say they will return in future sessions to push tax reform further. 

In broad strokes, the 2013 tax measure reduces the state's three-tiered individual income tax rate to a single rate and simplifies the deductions available to taxpayers. The tax rate for corporations is also lower. Lawmakers did not change the sales tax rate, but they did tweak how the sales tax applies to a handful of items, most notably electric and natural gas utilities. 

Both proponents and opponents of the plan acknowledge that the biggest breaks will go to the highest income earners. Democrats have generally decried this as unfair to low-income workers, who are going to bear the brunt of service cuts brought about to compensate for the tax changes, while Republicans have generally argued that those who pay the most in taxes ought to get the biggest cuts. 

Here is a listing of the major changes in this year's tax reform bill:

The tax bill also eliminates a two-year-old deduction for personal business income. Taxpayers could deduct up to $50,000 in business income that counted against their personal taxes. Instead of filing their own income, many small businesses and partnerships pay taxes by way of their owner's income tax statement. This is a break that was used by full-time workers who had outside business income – an office worker who picked up extra money mowing lawns on the weekends or a communication professional who took on occasional freelance assignments – as well as lawyers and doctors. 

According to an analysis given to lawmakers, some "390,000 filers would see a tax increase under the tax plan." The useful, if somewhat technical, explanation continued: 

"According to the NC BearingPoint Tax Model, under the proposed plan, 60 percent of individual tax returns with business income that qualifies for the $50K business income deduction would see a tax increase, 23 percent would see a tax decrease and 17 percent would see no change. Approximately 650,000 returns would take advantage of that deduction. It’s difficult to say how many small businesses that is, since multiple businesses could be listed on the same return and the same business can be listed on multiple returns."