If homeowners fighting foreclosure can get their lenders to forgive some of their debt, Republican leaders in the N.C. Senate want to count that as taxable income and hit those homeowners with a tax bill.
That’s not text from a Democratic attack ad. That’s actual GOP-sponsored legislation barreling through the General Assembly.
This provision, tucked in with changes to the state gas tax, could affect as many as 4,000 homeowners snared in messy mortgage situations.
If your lender forgave $20,000 of your mortgage principal, North Carolina’s individual income tax rate of 5.8 percent means you’d owe $1,160 on that relief. If you had $40,000 forgiven, you’d be staring at $2,320 in extra taxes.
The Senate gave final approval of the bill last week. We wished they had listened to their Republican colleague, Tamara Barringer of Wake County. She offered the lone GOP vote against the bill because of its impact on struggling homeowners.
Just to be clear, the Senate is talking about taxing people on “income” that never actually makes it to their checking account.
“It’s not income to them,” Barringer said. “It’s gone. It’s phantom. It’s evaporated. These are people that have lost their homes. Are we going to tax them when they’re trying to get back on their feet?”
The answer to her question appears to be yes – unless members of the N.C. House take a different stand when the bill reaches their chamber this week.
You would think someone with enough power in the General Assembly would say this doesn’t make sense and stop it. But that fails to take into account the broader context in which Republican leaders are operating. They’ve slashed corporate and income taxes that would have brought in hundreds of millions of dollars annually; they need to backfill that money from somewhere, and they don’t want to be the next Kansas. That state’s GOP slashed income and business taxes only to end up with a hollowed-out budget and angry citizens.
So, they’re raising taxes on goods and services, and closing loopholes throughout the tax code. They’re cobbling together as many income streams as possible, even some that seem politically imprudent.
Another example: they’re trimming a deduction for college tuition expenses. What’s more politically popular than helping families put their kids through college?
It seems the folks who kept saying they were against tax increases while out of power were just partial to raising a different class of taxes than the Democrats. Namely, the regressive, consumption-based taxes that tend to pinch the working class and the poor the hardest.
With Bank of America gearing up to offer $7 billion in consumer relief nationally under its $17 billion settlement with the U.S. government, it appears lawmakers have picked a good time to stick their hands in the pockets of struggling homeowners.
The proposed change would mean about $14 million more for the state, according to legislative staffers. But these families should be among the last asked to shoulder more taxes.
The N.C. House has tended to be the more moderate of the two Republican-led chambers. We hope Speaker Tim Moore, R-Cleveland, and his colleagues agree that we should not use our tax code to kick struggling homeowners when they’re down.