A lower tax rate, but more taxes

A lower tax rate, but more taxes
http://www.newsobserver.com/news/story/1497201.html

A lower tax rate, but more taxes
Car repair, moving and house painting would be taxed under Senate Democrats' plan.
By Mark Johnson - Staff Writer

RALEIGH -- Democratic N.C. Senate leaders disclosed the details Wednesday of a sweeping overhaul of the state's tax system that would lower tax rates but apply the sales tax to a variety of services that are now tax-free, from movers to movie tickets.

Senate finance committee leaders outlined tradeoffs in their plan, such as eliminating a list of tax deductions but adding a shorter list of tax credits that they contend will make the tax system simpler and fairer.

The proposed plan would raise an additional $580 million next year, roughly the same increase as proposed by Gov. Beverly Perdue in her budget plan.

Sen. Dan Clodfelter, a Charlotte Democrat and one of the committee heads, emphasized that lawmakers would have time to review the proposal and suggest improvements. "It's not finished," he said.

Highlights include:

TAXING ADJUSTED GROSS INCOME:. Income tax would be based on adjusted gross income, or AGI, instead of federal taxable income. AGI is higher, because expenses such as mortgage interest and health care have not been taken out.

RATES DIP: Tax rates based on income would go from 6, 7 and 7.75 percent to 5.25, 6.5 and 7.5 percent; those who are married, filing jointly and making $10,000 or less, pay nothing.

TAX CREDITS: Homeowners could get 6 percent of mortgage interest payments back in a tax credit, up to $600. Also, 6 percent of medical expenses, beyond the current threshold for a federal tax deduction, could be taken as a tax credit.

LOWER TAXES, MORE TAXES: The state share of sales tax, scheduled to be 4.75 percent next fall, would instead go down to 4percent. (Localities add their own.) But it would apply to currently tax-free services such as: warranties, installations and repairs to personal property, such as cars. The tax would be added to movie and concert tickets, moving and storage and building repairs, such as painting a house. Digital products, such as software or music, would be taxed if the consumer could have bought them in a store.

REDUCTION INC: Corporate income tax drops from 5.8 percent to 4.5 percent.

SIN TAX: Cigarette taxes would go up by 15 cents apack. Alcohol tax would go up and would be based on alcohol content instead of volume.

The reviews were mixed:

"It would go a long way toward modernizing the state's tax system, making it simpler." -- Elaine Mejia, director of the N.C. Budget & Tax Center.

"We just don't know the impact. Now that it's out there, we'll gather feedback from our members. Tax rates are important, but so is what you tax." -- Sherry Melton, vice president of communications, N.C. Chamber.