Smear Of North Carolina Lawmakers Requires Withholding Of Key Information

By Patrick Gleason, Contributor
North Carolina State Legislative Building in Raleigh, NC getty

Recent polling from Pew Research shows trust in the media has plummeted in recent years. National media outlets, both television and print, offer plenty of instances of news coverage that is slanted or incomplete so as to serve a political agenda or aid a particular political party. Though people like to talk about local newspapers with great reverence, misinformation is also found in plenty of local media outlets, either through omission or commission. A Durham Herald-Sun column published on August 30 provides a timely example of such locally spread misinformation. 

In that Herald-Sun column Stephen Greenberg, a Chapel Hill-based tax accountant, portrays North Carolina as an outlier when it comes to the taxation of Paycheck Protection Program (PPP) funds that small businesses used as a financial lifeline to survive over the past year:

“Thousands of small business owners in North Carolina who received Paycheck Protection Program money are being treated unfairly by the state,” Greenberg writes. “It’s the fault of the N.C. General Assembly.” 

Yet, never once in his entire article does Greenberg inform readers that North Carolina legislators have already enacted a bill to exempt forgiven PPP loans from state income tax. He alludes to it when he notes that last year “the General Assembly passed a law that changed the taxation of PPP forgiveness.” Yet he never explains to readers what that change accomplished, which is to exempt forgiven PPP loans from state income tax. That Greenberg withholds such information is both odd and a disservice to readers. 

What Greenberg’s column is addressing, though he doesn’t clarify it for readers, is the fact that under current law businesses cannot deduct expenses paid with PPP funding when calculating their state tax liability, as they are allowed to do when tabulating their federal tax burden. Here again, Greenberg leaves readers in the dark by not mentioning that the new state budgets approved this summer by both chambers of the North Carolina General Assembly include provisions that rectify this matter. North Carolina House and Senate lawmakers are currently working out the differences between their two budgets in conference committee, and the final product to be sent to Governor Roy Cooper’s (D) desk is expected to include language that will have the state conform with federal tax deductibility for expenses paid with PPP funds. 

“Recent figures show that approximately 22,861 PPP loans over $150,000 were issued in North Carolina, as well as 242,523 smaller than $150,000,” Greenberg writes. “Among them were thousands of small business owners. I hope each one of them will contact the General Assembly and get N.C. legislators to correct this unfair tax.” 

Greenberg could’ve informed readers that the North Carolina General Assembly has already taken action to ensure that state income tax is not assessed on forgiven PPP loans. He could’ve also informed readers that North Carolina legislators are in the process of fixing the remainder of the problem, which is the focus of his article, as part of the new budget that Governor Cooper could sign into law as soon as this month. Yet Mr. Greenberg chose not to clue readers in on that relevant information, perhaps because it completely debunks his narrative that legislators in North Carolina are harming small businesses. 

In fact, when it comes to the tax treatment of small businesses in North Carolina, state legislators, led by Senate Leader Phil Berger (R) & Speaker Tim Moore (R), have provided significant relief to small businesses in recent years through income tax rate reduction. As recently as 2013, North Carolina small businesses, the majority of which file their taxes under the individual income tax system, faced the highest state income tax rate in southeastern United States at 7.75%. Over the past eight years, the Republican-led General Assembly has enacted multiple rounds of rate-reducing tax reform, ultimately bringing the personal income tax rate down to a flat 5.25%, which is now the lowest in the region aside from the no-income-tax states of Tennessee and Florida. The compromise budget deal that will soon be released from the conference committee will include another reduction in North Carolina’s personal income tax rate, possibly taking the rate down as low as 3.99%. 

At the same time that North Carolina lawmakers are working to finalize a budget that provides more relief to small businesses and households with a reduction in the personal income tax rate, they’re also seeking to provide relief for low income taxpayers. The budget deal to be released from the conference committee is also expected increase the standard deduction, as both the House and Senate versions of the new budget expand the zero tax bracket in a way that will provide relief to households who need it the most, raising the threshold at which state income tax begins to be assessed from $21,500 to $25,500 for married couples. Senate leaders estimate that the standard deduction increase included in their new budget would remove 200,000 North Carolinians from state income tax rolls.

According to IRS data for tax year 2018, the most recent year available, more than 817,000 small businesses filed under the individual income tax system in North Carolina. That figure only represents sole proprietors. More than 262,000 partnership and S-corp owners also pay the personal income tax rate. 

Thanks to the multiple rounds of tax reform enacted by the North Carolina General Assembly, more than a million small businesses across the state have a much lower tax burden today than was the case a decade ago and, subsequently, have greater capacity to hire new workers and give existing employees raises. This, like the fact that North Carolina legislators have addressed half of the PPP taxation problem and are getting ready to rectify the rest as part of the new budget, runs contrary to the August 30 Herald-Sun story about Republicans allegedly hurting small businesses. Rather than harm small businesses by prohibiting the tax deductibility of expenses paid with PPP funds, which is is not going to happen so long as Governor Cooper signs the new budget, North Carolina legislators have actually done more to provide tax relief to small businesses than have lawmakers of perhaps any other state.


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