The logical extreme tax loser

By Scott Mooneyham | Jan 27, 2014

 

RALEIGH — In college, one of my political science professors encouraged his students to consider what he referred to as "the logical extreme."

By having students think about whether some theory or position would hold up under even the most extreme circumstance, he was engaging in a useful exercise in critical thinking.

So, for example, if the subject were monetary policy, and someone theorized that economies work best when money is tied to a gold, someone else seeking to disprove the theory might dig up a terrible economic crisis during a time when the gold standard existed.

Lately, I have been thinking about how the logical extreme might apply as the political right begins a concerted effort to convince North Carolinians that everyone will benefit from the tax overhaul that state lawmakers approved last year,

The changes are only now taking effect, and many North Carolinians won't really know whether they are net winners or losers until they settle their 2014 state taxes in the winter and spring of 2015.

But the conservative Civitas Institute recently began running radio ads proclaiming, "Millions of North Carolinians are now taking home bigger paychecks because last year the state legislature and governor signed the largest tax cut in state history into law."

About the same time, the conservative John Locke Foundation produced a study saying that all classes of taxpayers would benefit.

"It's simply false to claim that recent tax changes in North Carolina are allowing the well-to-do to get their taxes reduced 'on the backs of' lower- and middle-income groups," wrote Locke Foundation vice president Roy Cordato.

By recent, Cordato meant not just the huge tax overhaul that state lawmakers approved last summer. He included the Republican-controlled legislature's decision to allow a sales tax hike to expire in 2011.

The study examined income groups, not individually-situated taxpayers.

It's when you consider the individual taxpayer that you find the logical extreme.

In this case, the logical extreme is a married couple, each having a 50-percent ownership in a small business with a total taxable income of $125,000.

Besides allowing that sales tax hike that Democrats had imposed two years earlier to expire, the Republican-controlled legislature also adopted a $50,000 deduction for non-corporate business filers in 2011.

State lawmakers decided to eliminate that change when putting together their larger 2013 tax package.

Under that 2011 change, our logical extreme couple saved $7,750 off of their tax bill.

The 2013 income tax cut and increase in the standard deduction should save the same couple about $2,600.

So, with the one tax cut eliminated, and the others in place, the logical extreme couple will see a net increase in state income taxes of about $5,000.

No doubt, there will be plenty of winners under the 2013 tax changes. A wage-earning family without outside business income making about the same as our theoretical couple will be among them. So will business owners who make substantially more than that couple.

But no losers?

Good luck selling that.

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