RALEIGH (AP) — Supporters and critics of a Republican tax overhaul plan that received tentative approval Tuesday from the General Assembly made their cases about whether most North Carolinians stand to benefit from the package.
The Senate voted 32-17 along party lines in favor of the deal announced Monday by House and Senate Republican leaders and Gov. Pat McCrory that would reduce corporate and individual income tax rates and expand slightly the sales tax base. A number of other tax changes would increase, reduce or eliminate tax exemptions.
Earlier Tuesday, two House Democrats joined all Republicans in voting 77-38 for the package, which now just needs another pair of “yes” votes Wednesday in each chamber to go to McCrory’s desk for his signature.
McCrory, Republican lawmakers and their allies praised the deal as historic and a key element of passing true “tax reform,” a catch phrase in North Carolina politics for decades.
“We have today an opportunity to bring our tax code into the 21st century,” House Majority Leader Edgar Starnes, R-Caldwell, said during the House floor debate. “This is a bill that will benefit the average citizen in the state of North Carolina and it will benefit every business in North Carolina.”
But Democrats and liberal-leaning advocacy groups said the measure isn’t tax reform, instead shifting the tax burden from the wealthiest citizens and out-of-state corporations to the rest of the state’s taxpayers.
“Once again, this General Assembly is saying that the middle class and the poor don’t matter,” first-term Rep. Valerie Foushee, D-Orange, said at a news conference, where fellow House Democrats railed against Republicans for shutting down debate after only 25 minutes.
The bill would result in $524 million less in combined revenue through mid-2015 compared to if no tax changes were made, with the amount expanding to more than $600 million annually in the following years, according to legislative documents.
McCrory, a Republican, also went on the road Tuesday to promote the tax plan at a Cary hotel, addressing a conference of the North Carolina Association of Realtors. The group’s leaders have been among the loudest critics of tax proposals that would have eliminated the mortgage interest deduction on state income taxes.
The final plan capped the allowable interest and property taxes that could be deducted at $20,000. “I know it’s probably not exactly what you’d want,” McCrory told the crowd. He defended the cap as a compromise that was part of a broader plan to energize a state economy that still has one of the higher unemployment rates in the country.
McCrory said lower income tax rates will make the state more attractive in recruiting new companies and discourage high-income residents from moving out of North Carolina. As Charlotte mayor, McCrory said, he could recall people moving across the border from Charlotte to South Carolina for the lower income tax rate.
The bill would reduce the state’s three personal income tax brackets — the highest rate at 7.75 percent — into one flat rate of 5.8 percent in 2014 and 5.75 percent in 2015. The corporate income tax rate of 6.9 percent would fall to 6 percent next year and 5 percent in 2015. The plan’s rates would appear to match or become lower than those in South Carolina, Virginia and Georgia.
“This is going to make us more competitive,” McCrory told the Realtors, adding that it will put more money into people’s pockets. “That means they’ll be able to buy more real estate. We’ve got to free up some money and reward productivity.”
The $20,000 cap would be met, for example, if a Raleigh homeowner were paying a $284,000 loan at 6 percent on a $355,000 home, according to the state Realtors, who are worried about the precedent that such a limit sets. “This is potentially the first step to an erosion of the benefits to homeownership,” association Executive Vice President Andrea Bushnell said.
Everyone had their own statistics and calculations Tuesday to boost their arguments about the benefits or damage that the tax deal would cause over time.
Democratic legislators offered their own scenarios of those filing taxes, especially smaller businesses and older adults. While no changes would be made to the tax treatment of Social Security income, a deduction for other types of retirement income would be eliminated. The plan also eliminates a $50,000 individual income tax deduction for certain business income approved in 2011.
“Instead of putting people back to work,” Senate Minority Leader Martin Nesbitt, D-Buncombe, told Republicans, “you’re making the rich richer, the poor poorer, and the middle class is getting angry.”
The North Carolina Budget & Tax Center, which advocates for the poor said its own analysis found that on average the top 20 percent of income earners — those making more than $84,000 annually — would see their taxes fall, while the rest would see their taxes on average go up slightly. The analysis is based upon preserving the state’s Earned Income Tax Credit, which is already expected to expire after this year, and changes to the sales tax.
Republicans rolled out tax scenarios with Monday’s announcement that found tax filers with incomes from $20,000 to $250,000 would receive income tax cuts. Those scenarios don’t include sales tax changes because they are small and won’t be paid by most taxpayers, according to staff members of Speaker Thom Tillis and Senate leader Phil Berger, citing the legislature nonpartisan fiscal staff.