House Reaches Compromise On Tax Reform Plan | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an associate editor to the Carolina Journal, John Hood Publisher.

Cap on deductions for mortgage interest, charitable giving, property taxes restored

    RALEIGH     A spokesman for House Speaker Thom Tillis said Wednesday that Republican caucus members have come to an agreement on tax reform and will move forward without a provision that would have removed the cap on itemized deductions for mortgage interest, charitable contributions, and property taxes.

    "This is part of the process on tax reform," said Jordan Shaw, a spokesman for Tillis, R-Mecklenburg, after House Republicans broke from a late-afternoon caucus meeting. "We're moving forward in a unified way."

    GOP leaders had to regroup after the House Appropriations Committee failed Wednesday morning to approve a procedural vote that would have allowed the committee to proceed with the bill.

    Rep. Julia Howard, R-Davie, objected to bringing up the measure in the committee because it did not contain a provision that she got inserted in the bill during a House Finance Committee meeting Tuesday morning.

    The Howard provision would have eliminated a cap of $25,000 in itemized deductions for the interest payments, contributions and property taxes.

    Howard, a Realtor and appraiser, said that when people buy homes, they do it with the understanding that they'd be able to claim an interest deduction from their taxes.
north Caolina General Assembly: Above.     photo by Stan Deatherage
    House Speaker Pro-tem Skip Stam, R-Wake, said the failure of the Appropriations Committee to take up the measure "a little bump in the road." He said that he believed that people who would benefit from removing the itemized deduction cap would also benefit from the individual income tax rate reductions contained in the bill.

    "They will save more on the reduction of the marginal rate than the cap [removal] can possibly save them," Stam said.

    Andrew Taylor, a professor of political science at N.C. State University, said that reports that there was a revolt among the House Republican ranks were overblown.

    "We're not talking about civil war here," Taylor said. "We're talking about differences that are relatively minimal."

    Taylor noted that tax reform is a central part of the Republican majority's legislative agenda this year.

    That's a goal that has been echoed by GOP Gov. Pat McCrory, who emphasized the need for tax reform in February during his State of the State address.

    The tax reform package would establish a flat income tax rate of 5.9 percent. Currently, the rate varies from 6 percent to 7.75 percent, depending on income.

    The bill also would phase in a reduction of the corporate income tax rate, which is currently 6.9 percent, over five years, eventually dropping to 5.4 percent in 2018. It would broaden the sales tax to include some services, such as repair, maintenance, and installation services, along with service contracts.

    Rep. David Lewis, R-Harnett, the sponsor of the bill, and other House GOP leaders were concerned about the fiscal impact that Howard's provision would have had on state government revenues.

    Lewis said Tuesday that legislative fiscal analysts estimated that the change could have resulted in $525 million per year less for state coffers.

    The House tax reform plan is one of three proposals drawing a lot of attention in the General Assembly this year.

    Two other bills are under consideration by the Senate Finance Committee.