House tax reform plan tweaked

A state tax credit for the film industry barely survived Tuesday as the House Finance Committee quickly approved a major overhaul of North Carolina's tax code.

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Matthew Burns
Laura Leslie
RALEIGH, N.C. — A state tax credit for the film industry barely survived Tuesday as the House Finance Committee quickly approved a major overhaul of North Carolina's tax code.

Rep. David Lewis, R-Harnett, rolled out the reform legislation last week, calling for a flat 5.9 percent rate on personal income taxes, dropping the corporate income tax rate from 6.9 to 5.4 percent and extending the sales tax to "the installation and repair of tangible personal items," such as mechanics' labor or home repairs, but not to other services.

With only about an hour of debate and with one major change, House Bill 998 is headed for the House floor for a vote later this week. 

The panel didn't debate the bill itself Tuesday, focusing instead on three proposed amendments. 

Some committee members questioned the wisdom of even voting on the amendments today, let alone the bill, saying such an extensive rewrite of the tax code needs more study and shouldn't be rushed to the floor.

"I implore that we have at least an additional day, if not two, on a bill of this magnitude," said Rep. John Blust, R-Guilford. "This just requires some very thoughtful deliberation and time to really think things through and soak things up."

Committee Chairman Mitch Setzer, R-Catawba, said lawmakers would have plenty of time to debate the legislation and other proposed amendments during the floor debate. But Rep. Paul Luebke, D-Durham, said the tax reform proposal might never be debated on the floor if House leadership decides to roll it into the state budget.

One change approved Tuesday would remove a proposed $25,000 cap on deducting mortgage interest and charitable deductions, and allow taxpayers to continue deducting their property taxes.

Repealing the deduction cap would help mainly upper-income earners. The change increases the cost of the reform package by $525 million.

"If this provision remains in place, what you're going to find is families – working families – trying to buy their first home or perhaps already in that home looking to you to say, 'Why did you reduce or take away something that I was counting on to make the monthly payments?" said amendment sponsor Rep. Julia Howard, R-Davie.

Lewis argued that the 80 percent of tax filers use the standard deduction and wouldn't be affected by the change. "With the pressure that we're under to fund essential state services, this amendment simply goes a little bit too far," he said.

The measure passed on a voice vote.

The amendment that received the most debate was an attempt to repeal the state's film tax credit, which the bill preserves.  

North Carolina juiced up its incentives to the film industry two years ago, offering production companies that spend at least $250,000 in the state a tax credit worth 25 percent their expenditures, up to $20 million.

Since that time, at least two major productions, “Iron Man 3” and “The Hunger Games,” have shot scenes in the Tar Heel State.

Rep. Mike Hager, R-Rutherford, said eliminating the credit would have saved the state almost $70 million last year, money that he said could have been plowed into higher salaries for state troopers or hiring more teachers.

"Do we want to continue to spend money this way, attracting folks that we have to pay to come?" Hager asked. "There's no study, there's no numbers I've seen from anyone that says this is actually a winner for North Carolina."

Rep. Paul Stam, R-Wake, said a study by legislative staffers shows the credit produced only 55 to 70 jobs in the state in 2011, and that many more jobs would have been created by an across-the-board tax cut instead.

Rep. Ted Davis, R-New Hanover, scoffed at Stam's figures.

"'Iron Man 3' created only 50 jobs? Come on," Davis said.

Davis and Rep. Susi Hamilton, D-New Hanover, said the tax credit helps thousands of people in the film trades, from make-up artists to set designers, to find work in North Carolina. 

"If you want to see everyone move out of Wilmington and everywhere else where filming is going on now and never come back, then simply get rid of the incentives," Davis said. "Keep the movie industry in North Carolina so we can keep the jobs and can keep our economy growing."

Lewis and Rep. Ruth Samuelson, R-Mecklenburg, noted that the tax credit is set to expire in 2015, and they said it would be unwise to yank the rug from under production companies that have made investments based on that date.

In a vote that split across party lines, Hager's effort to kill the credit failed on a 15-15 vote.

Rep. Paul Tine, D-Dare, tried to reinstate a 7.75 percent personal income tax rate for people earning more than $1 million a year in order to lower the corporate tax rate to 3.8 percent, which he said would help attract jobs to North Carolina.

Lewis said many businesses are structured so that income flows through to the personal side, and they never pay corporate taxes. Tine's amendment would harm small-business owners, he said.

Barry Boardman, chief economist for the General Assembly, said 65 to 75 percent of the corporate income taxes paid in North Carolina comes from the 400 largest companies.

Rep. Bill Brawley, R-Mecklenburg, said the amendment amounted to "taxing high-income individual more so we can give breaks to Bank of America and Exxon."

The amendment failed 20-10.

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