Legislators have been hearing from older residents who are doing their taxes for the first time under a major overhaul of North Carolina’s tax system. The change was designed to eliminate a variety of tax breaks and lower overall income tax rates. But some seniors with high medical bills found their tax liabilities had grown exponentially from last year’s filing.
The vote was unanimous in favor of House Bill 46, which would allow anyone age 65 or older to take a deduction for medical costs.
The bill’s sponsor, Republican Rep. Rick Catlin of Wilmington, said it’s “very important to be fair to those taxpayers.” At Wednesday’s meeting, he read emails from seniors who owe thousands of dollars in taxes under the new law. He says he’s received “pages and pages of signatures saying ‘please help us.’”
Catlin says he’s worried that North Carolina will be less appealing as a retirement destination without the deduction. He read an email from a man who retired from New York to Wilmington, who told Catlin “I honestly am telling our friends that North Carolina is not a senior citizen friendly state.”
Catlin said the loss of retirees would prove costly. “It is an economic impact on North Carolina,” he said. “A lot of states work very hard to bring in retirees to grow their population. In addition to being fair for our senior citizens, it’s good for the state.”
Bringing back the deduction would cost the state $37.9 million a year, and legislators would have to find that money in next year’s budget. But estimates from legislative staff show the cost would drop over the coming years, with as much as $12 million coming off the deduction’s price tag by 2017.
“That makes it even more affordable to do the right thing,” Catlin said.
Legislators have been hearing complaints from a growing number of seniors as the April 15 tax deadline draws near.
Retired lobbyist Sindy Barker has been attending meetings on House Bill 46 on behalf of her neighbors at Carol Woods, a retirement community in Chapel Hill. She said residents there are organizing lobbying efforts. And on Wednesday, she was back at the legislature along with her wheelchair-bound husband, who she says has significant medical bills.
Some Republicans – particularly in the Senate – are less willing to reinstate tax credits eliminated in 2013. While some tax reform supporters say they were surprised by the impact on seniors, others say it represented a difficult trade-off in order to lower taxes for everyone.
“I voted to eliminate a lot of other credits that were popular, one of which was the medical deduction for seniors,” said Rep. Hugh Blackwell, a Burke County Republican.
Blackwell mentioned the medical deduction Wednesday during a House debate about another popular tax break, the historic preservation credit. He argued that Republicans must shake off pressure from tax credit supporters and “stay the course” on tax reform.
“We’re now unraveling that,” he said.
Blackwell says the budget impact of credits could prevent the state from reaching revenue “triggers” that would further lower the corporate income tax rate. If the state meets specific revenue targets, the corporate rate will drop to 4 percent in 2016 and 3 percent in 2017. It’s currently 5 percent.
The senior deduction bill moves next to the House Finance Committee, where debate will likely focus on its budget impacts. Legislators will have to weigh the costs of the deduction alongside other tax credits already on the table – while some have suggested that the medical deduction be made available to people under age 65, such as families with disabled children.
Gov. Pat McCrory’s budget proposal, for example, calls for about $100 million in tax credit programs ranging from renewable energy to motorsports.
The committee had a longer discussion of the bill two weeks ago, but delayed taking a vote because Republicans wanted to discuss it in their closed-door caucus meeting. GOP leadership was evidently supportive, as no “nay” votes were heard Wednesday.