Revenue Laws Committee Punts on Death Tax, Recommends More Unemployment

In the final meeting of the Revenue Laws Study Committee yesterday, the committee decided to include a number of recommendations to submit to the legislature this session. Among those issues discussed by the committee but not included in the report is any changes to the state’s death tax. Committee leaders decided to wait and see what happens at the federal level with the death tax, and then will likely address this issue next year as part of their promised “tax modernization” efforts in 2013.

Perhaps the two most significant recommendations that did make the committee’s report involve unemployment insurance payments and targeted tax credits.

The committee decided to extend for another year the formula used to qualify for extended unemployment benefits – an effort expected to qualify more unemployed North Carolinians for the extended benefits, which are currently paid for by the federal government. North Carolina already owes the federal government $2.5 billion on money it borrowed from the Feds to cover unemployment claims over the last few years; the first interest payment of nearly $80 million was made last fall. Also included in the recommendation is a change in what can be considered to categorized as firing for “misconduct”, and therefore would disqualify someone who was let go from receiving unemployment benefits. The major change in this area involves a worker’s actions that “disregard the employer’s interests” and for which the worker has received no fewer than three written reprimands.

Discussion on the extension of the unemployment benefits centered almost exclusively on the fact that it wouldn’t cost the state any money because the federal government will cover the costs. However, no mention was made of the fact that the federal government doesn’t have sufficient funds to cover these obligations, as it borrows roughly 43 cents for every dollar it spends. Moreover, no mention in the committee report was made of the fact that extending unemployment benefits will keep North Carolina’s unemployment rate higher than it would otherwise be. North Carolina’s current unemployment rate of 9.7% continues to be significantly higher than the national average of 8.2%. Indeed, our state’s annual average unemployment rate has been higher than the national average every year since 2001, and is on pace to do so again in 2012. By contrast, for the 25 years prior to 2001, NC’s annual average unemployment rate exceeded the national average only once.

The other significant recommendation coming from the committee was the extension for one more year of several targeted tax credits scheduled to expire at the end of this year. Among those are tax credits for various renewable energy facilies, recycling oyster shells, the refundable portion of the earned income tax credit and the Article 3J tax credits. Also recommended for another year are sales tax refunds to specific groups including passenger air carriers, aviation fuel for motorsports teams and analytical services businesses.

The extension came as a bit of a surprise to some observers, and perhaps came at least in part at the urging of Sec. of Commerce Keith Crisco, who was invited to say a few remarks near the end of the meeting. Crisco’s comments were rather curious, however, in that he claimed the one-year extension of these tax credits were essential to the state’s business recruiting efforts because it created a climate of “certainty.” This is rather puzzling given the fact that the committee repeatedly said they are planning on significant reform to the state’s tax code next year. How does a temporary, one-year extension of tax credits create any certainty given the knowledge that the state will make significant changes next year? Why not just let the tax credits expire and go away – what could create more “certainty” than that?

The credits are estimated to total roughly half a billion dollars annually – these targeted priveleges should be done away with in order to enable lower tax rates across the board.