Moore County, North Carolina Republican News & Views

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Morgan's Tax Cuts

Richard Morgan is posing as a tax-cutter, and some people believe him.  For example, in The Pilot (or here) (2/25/2004) Scott Mooneyham says:

"When it comes to substance, Morgan is still a pro-business, anti-tax Republican [because] Morgan is the guy who decided that previously delayed middle-class tax breaks - a child tax credit and elimination of the marriage penalty - had to go forward.  He and Black also blocked plans by Senate Democrats to raise sin taxes."

Is it true?  Did Morgan hold the line on taxes, like a good Republican?  Let's take a closer look at those tax cuts.


The 2003-05 final "compromise" budget, which Morgan helped push through the House, included tax increases totalling $1.0225 billion over two years.  The Senate Democrats had wanted to up the ante to $1.1389 billion.  (Senate Republicans wanted no tax increase.)  So Morgan supported a "compromise" which included 89.8% of the tax increases that the Senate Democrats had wanted, and blocked the other 10.2%.  Well, I guess 10% is better than nothing.  See:

What we finally ended up with was a net $390 million tax increase for FY 2003-04, and a net $632.5 million tax increase for FY 2004-05, totalling a $1.0225 billion tax increase for the biennium.  Here's the breakdown: tax_spreadsheet.html.

Note:  These numbers include the effects of the marriage penalty and child tax credit changes described below.


The marriage penalty was not "eliminated" for 2003, but it was cut in half.  In the 2002 tax year, a single person could claim a $3000 standard deduction, but a married person could only claim $2500 (or $5000/couple).  In the 2003 tax year, a single person can still claim a $3000 standard deduction, and a married person can claim $2750 (or $5500/couple).
See http://www.dor.state.nc.us/downloads/indiv_archive/02archive/D400_D400TC_2002.pdf  (p. 3)
and http://www.dor.state.nc.us/downloads/D400_D400TC.pdf  (p. 3)
The increase in the deduction for married people results in a tax cut of, in most cases, $17.50/person or $35/couple (that's calculated for the 7% tax bracket).

The other half of the marriage penalty is now scheduled to be eliminated for tax year 2004, when the standard deduction for a married person will increase to $3000 (or $6000 per couple), to match the standard deduction for single people.  This will result in another $17.50/person ($35/couple) tax cut for married people in the 7% tax bracket, if it is not rescinded or delayed again.
See http://www.ncleg.net/html2001/bills/AllVersions/Senate/S1005vc.html  (SECTION 34.19, or search for "marriage tax penalty").

Note that the difference between the House and Senate proposals was only an argument over the timing of the change.  The Senate Democrats wanted to delay this change again, for two more years.  The House opposed this additional delay.

The tax difference (calculated using the 7% tax bracket, which most taxpayers are in) between the House version (i.e., no change in existing law) and the Senate version (a temporary tax increase) is:

    $17.50 per married person in tax year 2003
    $35.00 per married person in tax year 2004
    $17.50 per married person in tax year 2005
    and no difference after that.


The tax credit for children for low and middle-income taxpayers was increased from $60 to $75 for tax year 2003, an increase which was enacted in 2001, originally to take effect in tax year 2002.  The increase from $60 to $75 was not rescinded or delayed again, but, instead, the legislature reduced the the qualifying age to 16.  In 2002 the qualifying age was 18 for non-students or 23 for students.  The result is nearly a wash, for 2003.  Some people get $15 more, some get $60 less, but the average change is near zero.
See http://www.dor.state.nc.us/downloads/indiv_archive/02archive/D401_2002.pdf  (p. 12)
and http://www.dor.state.nc.us/downloads/D401.pdf  (p. 12)

However, in 2004 the tax credit is scheduled to increase by another $25, to $100.  This increase was originally scheduled for tax year 2003, but was delayed by one year.  The qualifying age limit will be 16, so this is still less of a tax credit than what taxpayers were promised back in 2001 for tax years 2003 and beyond.
See http://www.ncleg.net/html2001/bills/AllVersions/Senate/S1005vc.html  (SECTION 34.20, or search for "credit for children").

Even with the reduction of the age limit for eligibility to 16, the second-year increase in the tax credit should net out to small but real average reduction in taxes for tax year 2004 for families with children.  Compared to 2001, some will see a $40 increase in their tax credit, and and some will lose it all, but there should be 3 or 4 times as many people getting the $40 increase compared to the number who will lose the whole thing, so it will net out to a small average tax reduction (if it doesn't get rescinded or delayed again).  I haven't found a fiscal note for the original tax credit, so these numbers are not precise, but I calculate that it should work out, for tax year 2004, to an average net tax cut of roughly $20/child compared to 2001, but an average net tax increase of roughly $20/child compared to existing law.


Note that the reduced child tax credit eligibility age represents a permanent tax increase.  So the House conferees (appointed by Morgan & Black) blocked a tiny temporary tax hike on married people, but accepted a similar-sized permanent tax hike on children.

Some victory.

For more information on the fiscal impact of the various 2003 tax law changes, refer to this report from the Research Staff at the Legislature.  It came to us via a circuitous route, but I believe it originated with Rep. Frank Mitchell:  legislative_research_finance.rtf

Also, Rep. John Blust, Republican Joint Caucus Leader, has some complaints about my analysis.

-Dave Burton  2/15/2004
[updated 2/27/2004, and again 3/9/2004]

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