RALEIGH (AP) — The North Carolina House completed passage Monday night of a tax code overhaul written by the chamber’s Republicans. The measure now heads to the state Senate, where GOP leaders have sought more dramatic changes to North Carolina’s tax system than what the House approved.
The chamber voted 75-37 in favor of the package, which would lower individual and corporate income taxes and expand the types of transactions subject to the combined state and local sales tax. The bill received tentative approval late last week almost completely along party lines. Republicans called the changes an historic step in North Carolina.
“Tax reform has been talked about a heck of a long time,” bill co-sponsor Rep. John Szoka, R-Cumberland, told colleagues on the House floor. “Tax reform is not an event, it’s a process, and it’s an awesome start to this process.”
The plan would reduce in 2014 the three current individual income tax brackets — the highest is now 7.75 percent — and replace them with one flat rate of 5.9 percent. It would also increase the current standard deductions. The corporate income tax of 6.9 percent would decrease incrementally to 5.4 percent by 2018. The current income tax rates are the highest in the Southeast.
Szoka said the measure would reward hard work and show that businesses are welcome in the state. Republicans cite statistics showing scenarios in which the proposal would result in an overall tax reduction for people with a broad array of income levels and tax filing statuses.
But Democratic Rep. Nathan Baskerville of Vance County contended that the legislation is a tax break for millionaires that would increase the tax burden on working families. The package would mean $1.7 billion less for state coffers through mid-2018 compared to making no tax changes, according to an analysis from General Assembly staff.
The proposal is “just one more attempt to put the burden on the working people,” said Rep. Grier Martin, D-Wake, adding that “instead of moving our tax system from the 20th century to the 21st century, it’s going completely in the wrong direction.”
The North Carolina Budget & Tax Center said 95 percent of taxpayers — those making less than $169,000 — on average will experience a tax increase under the current bill, largely due to the sales tax changes.
Starting in July 2014, the combined sales tax that people in most counties pay would be reduced from 6.75 to 6.65 percent. There would be some changes or additions to the list of transactions and services that would be subject to a sales tax.
New taxable items would include warranties and maintenance activities as well as services such as car repairs. A 3 percent tax on electricity would now be taxed at the full rate. The current $100 per-child income tax credit would rise to $250 for most filers.
A plan backed by Senate leader Phil Berger, R-Rockingham, and his lieutenants would also reduce tax rates but expand greatly the number of transactions subject to the sales tax. Gov. Pat McCrory, a Republican, has said he favors the House plan and a somewhat similar plan backed by senators from both parties.