Read their lips: Some new taxes | News
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Thursday, March 10, 2011

Read their lips: Some new taxes

Posted by on Thu, Mar 10, 2011 at 9:00 AM

With Republicans taking over the N.C. General Assembly, you probably figured you could rest easy on taxes. I mean, sure, they might lay off a few thousand teachers, but at least your taxes won't go up.

Because they promised that, right? It was item No. 1 in the GOP's pre-election 100-day plan.

Well, we campaign in poetry and govern in prose. So here are a few forthcoming tax increases — or things suspiciously similar to tax increases — bubbling through the legislature right now.

The hospital "assessment"

Senate Bill 32 is obviously a new tax, and yet the bill refuses to call it one. Instead, it's an "assessment" that is "imposed" on hospital costs.

This "assessment" on hospitals raises an estimated $216 million in new state money, according to the North Carolina Hospital Association, most of which would be used to draw down more federal Medicaid money somewhere north of a 2-1 match.

So we're talking nearly $600 million in new revenue. About $43 million would go to help balance the state budget, and the rest would be plowed back into hospitals through Medicaid payments.

But it's not a tax, OK?

"It's a voluntary assessment," Senate Appropriations Co-chairman Pete Brunstetter, who is sponsoring this bill, said last month. "It's been requested by the hospitals. A tax is an involuntary payment to government."

It's been requested because hospitals are afraid the state will cut Medicaid reimbursements, which already don't cover the full cost of caring for people with government-funded health insurance. And while the tax may be voluntary for hospitals, going to the hospital isn't exactly voluntary. So, it will be interesting to see whether this new assessment makes its way onto patient bills

Plus, the big money in this plan comes from the federal government, which gets its money from federal taxpayers. Having looked at recent census figures, I can assure you some of those live in North Carolina.

The Earned Income Tax Credit

Some people make so little money that they get a check from the government to make up for some of the other taxes, such as sales taxes, that they pay. This is called the Earned Income Tax Credit. There's a federal version and a relatively new state version in North Carolina.

Part of the EITC is just a tax credit — if you qualify, you pay less taxes. But part of it is "refundable," and that's where the checks come in. More than 400,000 North Carolina families qualified for the refundable portion of the state credit last year, according to the Associated Press, and that cost the state more than $52 million.

Republican legislators are pushing to do away with this through House Bill 93. Now, that's not a direct tax increase so much as it's an end to subsidy checks for low-income families. The bill wouldn't end the entire EITC, just the refundable portion.

But, since poor people pay a higher percentage of their income in taxes than the wealthy, you can argue that this is a de facto tax increase.

With the GOP in charge the odds are good that this bill is going to pass the legislature. You also have to think there's a good chance Democratic Gov. Bev Perdue will veto it, particularly since her office tweeted this out Wednesday. With Democrats having enough numbers in the House to fend off veto over-rides, GOP legislators may be wasting their time on this one.

Unemployment insurance

This one's a doozy, and it would hit businesses in a big way.

Employers pay an employment insurance tax on each employee. That money goes into a trust fund, and if you get laid off and file for unemployment, your checks come out of this fund. But with so much unemployment for so long, the state's trust fund has a negative balance.

More than -$2.6 billion worth, all of it loaned to the state by the federal government. There's no telling what Congress will do about that, but at the moment North Carolina is supposed to start paying that money back this fall at more than 4 percent interest.

The state had Morgan Stanley look at its options and they all seem to involve jacking up the unemployment insurance tax up several times over. Congress could always forgive this debt, and the tax wouldn't need to increase. But only 31 states owe the federal government money, and the debts range from $5.7 million for New Hampshire to $10 billion for California, so there's a real equity issue in doing that.

The state could stave off some of the increases by borrowing money from banks to pay the feds. That actually saves money, according to Morgan Stanley, because somehow private banks are willing to lend North Carolina money at a lower interest rate than the federal government.

But that money's got to be paid back eventually, too, so it's hard to see any scenario that doesn't require the state to increase the employment insurance tax.

There's a good bit more to this issue, and you can read about it in today's Winston-Salem Journal.

April 8 update: I happened to google the headline on this piece today and discovered that a Politico writer used the same headline on a post back in 2007. For the record, I didn't know that when I wrote this post.

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