RALEIGH (AP) — House Republicans pushed a repeal of North Carolina’s estate tax through a key committee Wednesday, over the objections of Democrats who said the majority party is again favoring the well-off over the poor and unemployed.
The House Finance Committee voted mostly on party lines in favor of the measure, although a broader tax overhaul plan is expected later this year. The measure would eliminate what GOP legislators have sought to do away with for years. A change by Congress last month to rework the link between federal and state estate taxes gave GOP legislators the opportunity to get rid of the state’s portion.
Republicans say what they call the “death tax” encourages the wealthy to move out of state and hurts family-owned farms. The tax for people who died this year applies on the value of an estate over $5.25 million, with a tax ranging from 0.8 percent to 16 percent. The exemption is $10.5 million for married couples.
“We’ve got people who have worked, have scraped and saved all their lives to build up a business or a farm,” House Majority Leader Edgar Starnes, R-Caldwell, said before the 24-10 committee vote. “Why do we want to establish an economic policy that punishes people just because they’re trying to save something?”
Most Democrats on the panel voted against the measure, with some seeking to contrast the bill affecting the wealthiest individuals with other legislation backed by Republicans early in this year’s session. GOP Gov. Pat McCrory signed a bill earlier this week designed to fix the unemployment insurance system through cutting maximum weekly benefits, although business taxes will be higher, too.
The House gave its final approval later Wednesday to a separate tax measure that Democrats couldn’t alter that keeps the state’s Earned Income Tax Credit on track to expire next year.
“The timing of this is extremely bad,” said Rep. Susi Hamilton, D-New Hanover, who voted no but said she would have been inclined to support it under different circumstances. “I think it makes us look like a body that has no interest in helping families and helping those who are most needy in this very difficult economy.”
The repeal would mean $52 million in lost revenues for the state during the fiscal year starting July 1, increasing to $66 million in the 2017-18 fiscal year, according to fiscal researchers for the General Assembly. About 1 in 500 estates — 0.2 percent — are subject to the tax, the researchers said.
First-term Rep. Susan Martin, R-Pitt, one of the bill’s primary sponsors, said she was following through on a campaign promise with the bill, which she said is of great importance to farmers and others in her eastern North Carolina district. It’s not uncommon or unreasonable for land and farm equipment to be total millions in value, she said.
The bill is now expected to go to the House Appropriations Committee, where Starnes said he didn’t know if it would come out as a separate measure or merged into the state budget bill.
House and Senate Republicans and McCrory are talking about ways to complete a comprehensive overhaul of the state tax system this year that would likely reduce corporate and individual income tax rates and probably expand the number of services subject to the sales tax.
Senate leader Phil Berger, R-Rockingham, has said a fair tax overhaul includes repealing the estate tax. Sen. Bob Rucho, R-Mecklenburg, who has been leading the Senate’s tax overhaul effort, said Wednesday that changes made by Congress to estate taxes in the “fiscal cliff” legislation persuaded him that North Carolina should act.
For more than a decade, estates could take a 100 percent tax credit on federal returns for the entire amount of the state estate tax paid, meaning the filer was no worse off financially with the state tax. The “fiscal cliff” law now only gives estates a deduction on the state estate tax paid, which means only a portion of state tax — 60 percent for the wealthiest estates — is being retained.
Sixteen states currently impose an estate tax, legislative researchers said.