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@NCCapitol

House gives tentative approval to tax reform bill

Posted June 7, 2013

— North Carolinians would see their income tax rates drop, but opponents say many people will end up paying more taxes overall, under a bill the state House gave tentative approval to on Friday. 

Lawmakers voted 72-32 in favor of the bill, which faces another debate and vote on Monday night before moving to the Senate. Senators are working on their own version of a tax reform bill that is markedly different from the House version.

"Today, Republicans are fulfilling a promise we made to the voters of this state," said Rep. Edgar Starnes, R-Caldwell. "We have talked about tax reform for decades. Until today, it’s been nothing more than just that – talk."

The House bill trades off cuts to corporate and personal income tax rates in exchange for higher taxes on electricity and expanding the sales tax to certain services that are attached to physical goods, such as car repairs, electronics warranties and appliance delivery.

House Bill 998 includes the following provisions:

  • Does away with a three-tiered income tax system with rates as high at 7.75 percent in favor of a flat 5.9 percent income tax rate. 
  • Exempts some income – $12,000 for a family of four – from any income tax. 
  • Lowers the corporate income tax from 6.9 percent to 5.4 percent.
  • Expands sales taxes to services associated with physical products, such as warranties, repairs and delivery. 
  • Unlike previous House versions and the Senate plan, the bill does not cut the combined sales tax rate. 
  • Expands the child tax credit from $100 to $250.
  • Provides either a standard deduction – $12,000 for married couples filing jointly – or up to $25,000 in itemized deductions of mortgage interest and local property taxes. It allows for unlimited itemization of charitable deductions.

Critics of the measure say those broader sales taxes will hurt low-income people more, while higher-income earners will see the lion's share of the tax cut. 

"This is a millionaires' tax cut bill," said Rep. Paul Luebke, D-Durham.

Earned Income Tax Credit ends

Lawmakers have been debating tax reform since the legislature opened its session in January, but Friday's debate marks the first time a bill has made it to the floor of either the House or Senate chamber. 

Rep. Larry Hall, D-Durham, focused on the fact that Republican lawmakers let the state Earned Income Tax Credit expire in earlier legislation. Republicans don't include the loss of the EITC in their calculations about who would pay more or less under their plan.

"Do we remember that we gave a tax increase to those 990,000 working families? No. We don't even mention it," Hall said.

But Republicans pushed back, saying that their tax reform proposal offers a zero-tax bracket to the same families who would have taken advantage of the EITC.

"In effect, this particular tax plan is providing a lot more relief," said Rep. John Blust, R-Guilford.

Hall insisted that the tax plan would be detrimental to most North Carolina taxpayers. 

"It's a tax increase on 95 percent of North Carolinians," he said. "We may be fooling ourselves, but you're not fooling those who will have to pay more taxes."

House session: Tax reform House approves tax reform plan

Projections by the legislature's fiscal staff show the vast majority of earners would pay less under the Republican plan, even if it's just a few dollars less every year.

"I'm having a hard time following where you're getting your facts saying that 95 percent (of people) will get a tax increase," Blust said. "Aren't you engaging in a bit of demagoguery with not accurate facts?"

Hall was citing one of a number of groups that have weighed in on the tax reform debate. The liberal leaning Budget and Tax Center says, "taxpayers with income less than $169,000 will, on average, see their taxes increase under House Bill 998. This is because the sales tax expansion will hit middle- and low-income taxpayers who spend more of their annual income harder than the wealthiest taxpayers."

But other groups, such as the conservative Americans for Prosperity, applauded the bill.

"The Tax Simplification and Reduction Act would provide $1.6 billion in tax relief to North Carolinians over five years and dramatically improve North Carolina's tax competitiveness in our region of the country," said AFP state director Dallas Woodhouse.

Electricity taxes rise

Even taking the legislature's own numbers at face value, Luebke pointed out that a family of four earning $40,000 per year would see less than $100 worth of benefit from the tax shift, while a similar family making $4 million per year would see more than $62,000 in benefits.

Republicans acknowledged the disparity but said there was good reason for it.

"Of course, those who pay more taxes are going to get more of a cut because they pay more taxes. That's simple math," Rep. Tim Moore, R-Cleveland, said. He argued that lower income tax rates would benefit businesses, who would then in turn be induced to relocate and expand here, creating more jobs.

"When we put these tax cuts through, it's going to make our state more competitive and bring in more jobs," Moore said.

Democrats tried to amend the bill several times. One attempted tweak by Hall would have restored the EITC by keeping a higher tax bracket for those earning more than $1 million. 

Another set of amendments by Democrats was aimed at paring back an increase in the sales tax on electricity. Rep Yvonne Holley, D-Wake, said that tax increase would be particularly burdensome to low-income people who had "to run a fan all night" to beat the summer heat. 

Republicans used a procedural measure to set aside all of the amendments offered by Democrats, choosing to cut off debate and "lie them upon the table" rather than vote on the measures directly. 

Rep. Mickey Michaux, D-Durham, noted the bill would cost the state $302 million over the next two years. That money, he said, would be better put toward teacher raises or paying for health care needs.

The state House is expected to debate the tax measure again on Monday night.

8 Comments

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  • jackjones2nc Jun 10, 7:33 a.m.

    Tillis will be held accountable for these middle-class tax increases. It's been 30 years of further enriching the wealthiest, yet nothing has "trickled down". Who do you believe the Republicans are serving?

  • pappybigtuna1 Jun 9, 10:44 a.m.

    The expenditures of the State Government have escalated over the past 20+ years, under the "spend & tax" premise.

    A group of elected (don't care about party lines) need to start someplace, this would be a great first step.

    Then the entitlement programs need scrutinized; drop the tax payer funded state retirement program (as I did and most other people of NC had to do, finance your own).

    Maybe this will force a spending freeze. If we increase businesses coming to that state that will automatically increase state revenues

  • josephlawrence43 Jun 8, 4:30 p.m.

    First off, the new taxes for the most part are voluntary user taxes. Don't use the services, don't pay the tax. Use the service, pay the tax. A choice for anyone to make. Additionally, since so much of recent times has been made of the "47%" who pay no taxes, this will insure that now, they will. So whats the beef??? The liberal/leftist/socialist have long hollered at the inequity of the tax system--well, now that inequity is being leveled out..

  • fwc1962 Jun 7, 6:55 p.m.

    Let's stop mincing words. The Republican General Assembly does not care about middle class nor lower income folks. The cumulative actions of coming tax increases, now denied medicaid expansion, educational cuts, economic development consolidation away from localities, confiscation of the Asheville water system against their citizen's will, and draconian cuts to the unemployment program all translate to this message: lower income folks and the poor are ordered to suffer for the most fortunate, or please leave our state. The Roman Ceasar and Senate of,say, A.D. 0 thru A.D. 73 would be proud. And for the poor in our state who voted for Governor Pat in large numbers you must now feel like you got Governor Pilate. If not, you should! Soap and water to wash your hands, anyone?

  • razor2 Jun 7, 6:03 p.m.

    These people are so blinded by power that they can't see beyond the
    end of their nose. People on set incomes who are barely surviving
    are either going to go homeless or become wards of the state.
    I can't honestly believe the stupidity. How is the less fortunate
    that cant work due to disability survive this is my question.They
    can't earn any funds due to their disability. The republicans have
    effectively cut off any help by changing the rules and raising the limits. So tell me how are they suppose to live not being able to pay for medicine rent utilities insurance and food. Our governor and his inter-circle are spiteful greedy vindictive and have no interest in protecting the most vulnerable people in this state one of the basic tenets of the oath they took going into office. Not only are they destroying helpless and good peoples lives with their greed they are doing it to garner more wealth for themselves and they have the nerve to call themselves Christians.

  • Plenty Coups Jun 7, 4:27 p.m.

    More of the failed "trickle down" philosophy of cutting taxes for the wealthy and raising taxes on the poor. Then there's the cost: 302 million in a state with educational spending thats 2 places from the bottom. Weird set of priorities.

  • HeadsUp Jun 7, 4:21 p.m.

    The best tax reform plan would keep personal income tax tiers but lower the rates, reduce the corporate income tax to match our neighbors' without eliminating it, and broaden the sales tax base significantly while exempting groceries and prescription drugs.

  • 42 Jun 7, 3:39 p.m.

    80% of NC be sure to thank Tillis for your tax increase.