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Republican lawmakers are reconsidering some of the measures passed under tax reform in 2013.
By Rose Hoban
When Leila Hamilton retired from New York to Chapel Hill for the warm weather and to be near family, she did her homework to figure out how much money she’d have every year. Her IRA and pension from being a teacher on Long Island would be enough to pay for her to live at Carol Woods, a Chapel Hill retirement community, with not a lot left over at the end of each month.
So Hamilton was horrified when she saw her North Carolina tax bill nearly doubled for 2014, going from $1,000 to $1,900.
“My tax preparer said, ‘You’re in for a shock,’” said the 88-year-old former teacher.
That’s because a medical-expense deduction that many seniors relied on disappeared when the North Carolina legislature passed a tax reform bill in 2013.
Hamilton recounted a laundry list of health care concerns – breathing problems, arthritis, high blood pressure – and joked that she’s “working on” dementia. On top of her doctor bills, she also pays for supplemental insurance to cover the costs her Medicare doesn’t, along with the cost of deductibles and co-pays.
“If you take $1000 away from me, you’re taking my living, things like drugs, food,” she said, detailing her other expenses. “You can’t deduct Depends, but they’re a necessary part of old age.”
It’s stories like Hamilton’s that have driven legislators to reconsider the medical tax exemption for seniors. Lawmakers in Raleigh have been inundated with emails from constituents complaining about how their tax bills ballooned over this past year.
And House lawmakers have heard their concerns. The budget presented last week by the North Carolina House of Representatives included a provision that would restore the exemption at a cost of about $23.6 million.
Federal law includes a tax deduction for medical expenses, for people over 65, that meant they could deduct any amount spent out of pocket, including the cost of insurance premiums, that adds up to more than 7.5 percent of gross income.
North Carolina used to allow the same deduction. But beginning in the 2014 tax year, medical and dental expenses were no longer tax deductible.
It wasn’t just seniors who were hit by losing the exemption. Under federal law and the old regimen, people under 65 can deduct out-of-pocket expenses that add up to more than 10 percent of gross income.
Rep. Julia Howard (R-Mocksville) said she heard from constituents of all ages, both by email and when she goes to the grocery store.
Howard said she heard from “parents who have children with disabilities who are not covered under extensive insurance policies, people who have had cancer who are on experimental drugs long term that are not covered by insurance that should be covered.”
On Monday evening, Howard offered an amendment during a meeting of the House Finance Committee to restore the tax break to people of all ages at an additional cost of $30.4 million.
All told, the cost of restoring the exemption will be about $54 million.
Not all of her Republican colleagues saw eye to eye with Howard.
The majority’s chief budget writer, Rep. Nelson Dollar (R-Cary), told members of the finance committee to vote no on Howard’s amendment.
“I think that certainly the heart is in the right place, and I think a lot of us would like to be able to do this,” he said. “You’re moving major pieces of money around that you don’t have.”
Rep. Paul Stam (R-Apex) worried aloud that restoring the tax exemption would be “unraveling tax reform.”
“Money is money, and if you spend it here you can’t spend it somewhere else,” said Stam, who argued the measure would hamper the legislature’s attempts to cut the overall income tax rate.
But other powerful members of the majority sided with Howard.
“I think this is something we need to do,” said Rep. Mike Hager (R-Rutherfordton), the majority leader. “We seem to have found money for a whole lot of other things. It would be nice if we could step up for our seniors and folks who have high medical expenses.”
The measure passed on a voice vote.
After the meeting, Howard said she was pleased the exemption had been restored in the House. She said that part of the current $400 million budget surplus was a result of lawmakers taking this deduction away.
“I was one of the folks who helped write the tax reform and sanctioned doing that,” she said, harkening back to when she was the finance committee chair.
“We made a mistake. So we need to fix it.”
The bill will go to the House floor this week, where it’s expected to pass. It remains to be seen whether the tax deduction is part of the Senate budget, which will appear in coming weeks.