Defining tax changes

Date posted: December 3, 2012

Tax reform may be on the agenda of both our new national- and state-elected office holders.  When someone talks about changing taxes, are they only talking about changing tax rates? N.C. State University economist Mike Walden responds.

“No, they are not. …  And this is where you have to listen carefully.  If you hear, for example, an elected official say, ‘I will not agree to increase, let’s say, tax rates,’ that doesn’t necessarily mean that person will not agree to a deal where taxes go up at least for some taxpayers, because there are really two elements that determine how much taxes any person pays — the tax rate, obviously, as well as the income on which someone is taxed. And that income — that taxable income — obviously is defined in part by how much income a person earns from working, but also is defined by the kinds of tax exemptions and tax deductions and tax credits that that person can take, all of which reduce their taxable income.

“So one source of compromise that you hear discussed between those elected officials who say they’re not  in favor of higher tax rates and those elected officials who say they want to see at least certain taxpayers pay more taxes is for them to agree to limit the amount of deductions, exemptions and credits. And we’re hearing that … discussed.  And that, indeed, could be the element of a deal between those two different positions.

“So you do have to listen carefully to what elected folks say. There is a difference between tax rates and how much tax someone does pay.”

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