Raleigh, N.C. — The state Senate is poised to debate a bill next week that would lower North Carolina's constitutional cap on income taxes from 10 percent to 5.5 percent, a move that would lock in many of the changes Republican legislative majorities have made since taking control of the General Assembly in 2011.
Current tax rates are 5.499 percent for individuals and 3 percent for corporations. Early in the decade, both rates had ranged higher, mainly in response to the income crunch caused by the global recession. Republican leaders say they want to ensure future legislatures don't rely on jacking up income taxes when the next recession hits.
But skeptics worry that the state is limiting its options should it be faced with another fiscal crisis, whether that be an economic downturn or a natural disaster.
"I'm still concerned we might not be leaving ourselves enough wiggle room," Sen. Ben Clark, R-Hoke, told the Senate Rules Committee on Thursday.
Earlier in the week, the Senate Finance Committee had signed off on the bill. Clark asked if bill sponsors would consider lowering the number only to 7.5 percent.
The bill's sponsors refused and insisted the bill is meant to give voters the option to limit how state government operates.
Lowering the cap on income taxes would, in effect, codify a taxation shift that is already underway. GOP leaders have pushed changes that move the state away from income taxes and instead expanded sales taxes to include services and more items.
"I think people clearly are afraid of what the number is because they're afraid voters will say yes," Sen. Ralph Hise, R-Mitchell, said.
In reality, it's unlikely voters will be moved to oppose a measure that purports to lower their tax burden. In order to make it on the ballot, two-thirds of the House and the Senate need to approve the referendum question. The governor does not get a say on bills proposing constitutional referenda.
Senators passed a similar bill last year, but it ran into opposition in the House, where lawmakers feared it would not give legislators enough latitude in case of a fiscal emergency. Former State Treasure Janet Cowell expressed similar concerns last year, saying that limiting the state's ability to raise money could cause credit rating agencies to downgrade the state.
However current State Treasurer Dale Folwell said he doesn't oppose the bill.
"In my time as treasurer, I have not seen or heard any indications from any of the ratings agencies that they have any issues with this," Folwell said.
Conservative groups have generally lined up behind lower the tax rate, saying that another fiscal emergency could prompt lawmakers to raise taxes on families.
"We can’t let that happen, and that is why we urge the chambers to let voters protect themselves by making the final call on lowering the income tax cap to our current rate of 5.5 percent," said Donald Bryson, who heads the North Carolina chapter of Americans for Prosperity.
Meanwhile, groups on the liberal end of the political spectrum argue that capping the tax would hurt families by limiting the state's ability to tax wealthier citizens while making the state more dependent on sales taxes, which have more of an impact on lower-wage earners.