WJTV News Channel 12 - NORTH CAROLINA: Lower flat tax, but many will still pay more

Lower NC flat tax starts Wednesday, but many will still pay more

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Sweeping tax changes take effect  Jan. 1 in North Carolina, including a new, lower flat tax. Still, some taxpayers will end up paying more.

Even before the new year, Sherry Ackman has already noticed one big change. The price of her daughter's meal plan at Elon University has seen a sharp increase.

"It went up $300. The tax made it go up $300," Ackman said. "That's a huge amount, especially for someone trying to pay for their own college."

A new sales tax on university dining hall meals is just one of a number of big changes on the horizon. There's also new taxes on manufactured homes, live entertainment and sporting events, and movie tickets.

Income taxes see the biggest change in generations. Right now, the highest earners pay as much as 7.5 percent of their income in state taxes. Middle income folks pay 7 percent. The lowest earners pay 6 percent. Starting on Wednesday, everybody pays a flat tax of 5.8 percent. That goes down to 5.75 percent in 2015.

North Carolina State University political science professor Steven Greene says that adds up to a big tax cut for the wealthy and not so much for the poor. He says it could turn into a political issue in 2014 and beyond.

"It's one thing if you think you're paying only a little bit more," Greene said. "But if you're paying even $20 more and yet the millionaire across town is paying $10,000 less, people have a very, very strong sense of fairness."

The corporate tax will also fall in the new year, from 6.9 percent to 6 percent. A spokesperson for Gov. Pat McCrory said the changes are designed to spur economic growth. They also tell WNCN that companies are already moving to North Carolina because of the promise of lower taxes.

But some Wake County voters still need convincing.

"People who have more should be doing more to support our society," John Gibson of Cary said.

"I mean, how's the state going to get out of debt?" David Parker of Holly Springs asked. "The state's in a massive amount of debt, the way I understand it."

The unemployment rate has dropped significantly in the last year. Last January, 9.5 percent of the workforce was unemployed. As of November, that number had dropped to 7.4 percent.


RALEIGH, N.C. (AP) - Significant changes made to the North Carolina tax laws approved this summer and taking effect starting Jan. 1, unless otherwise noted:
- Eliminates the current three-bracket rates of 6, 7 and 7.75 percent with one bracket with a 5.8 percent rate in 2014. The rate falls to 5.75 percent in 2015.
- Eliminates personal exemptions, but increases standard deduction - currently ranging from $3,000 to $6,000 depending on filing status - from $7,500 to $15,000.
- Eliminates $4,000 deduction on government retirement income and $2,000 on private retirement income. Social Security and some government income remain exempt from taxes.
- Limits itemized deductions originating from mortgage interest and property taxes combined to $20,000. All charitable contributions allowed by federal law can still be deducted.
- Raises child tax credit from $100 per child to $125 for tax filers with lower adjusted gross incomes, such as up to $40,000 for married couples filing jointly. The $100 credit is still eliminated for people with high incomes.
- Eliminates a $50,000 deduction on certain business-related income.
- Repeals a deduction of up to $2,500 for a single taxpayer and $5,000 for a married couple to give to a child through North Carolina's college savings plan. Account earnings remain exempt from federal and state income tax.
- Reduces current rate of 6.9 percent to 6 percent in 2014 and 5 percent in 2015. It could fall further in 2016 and 2017 if revenue growth targets are met.
- Remains at current combined state and local rate, which is 6.75 percent in most counties and slightly higher in others.
- Expands to include service contracts.
- Taxes manufactured homes (currently 2 percent or $300 maximum) and modular homes (2.5 percent) at full 4.75 percent state sales tax rate.
- Repeals exemptions for nutritional supplements sold by chiropractors, certain newspaper sales and food prepared for university dining halls.
- Replaces 3 percent gross receipts tax for live sporting and entertainment events with the combined state and local sales tax rate, with exceptions for certain arts festivals, agricultural fairs and school events.
- Replaces 1 percent gross receipts tax on movie tickets with the combined state and local sales tax rate.
- Changes the tax on electricity come July 1, which could result in higher bills for consumers.
- Repeals the estate tax for people who died on or after Jan. 1, 2013.
- Caps the state motor fuels, or gasoline tax at 37.5 cents per gallon through June 30, 2015.
- In separate legislation, the General Assembly allowed the state's portion of the earned income tax credit for the working poor to expire.

Derick Waller

Derick is a reporter for WNCN covering crime, education, politics and just about everything in between. He has a knack for adapting to any story and consistently delivers information quickly across multiple platforms. More>>

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