House unveils 'measured' tax reform plan

Posted May 30, 2013

— House leaders unveiled what they call a "responsible and measured" tax reform plan in committee Thursday morning.

House Bill 998, sponsored by Rep. David Lewis, R-Harnett, would lower personal income taxes to a flat rate of 5.9 percent, eliminating the current tiered marginal system of 6 percent, 6.75 percent and 7.75 percent. 

Lewis said the current system has the highest marginal rate in the Southeast.

"The rate that income is taxed should be the same for everyone to whom the tax is applied," he said. "It is my firm belief that setting a flat rate that everyone pays, which does not provide a disincentive for someone who wants to go from one of our current tiers to the next tier, is good policy."  

Lewis' plan would add a standard deduction of $12,000 for couples filing jointly, or itemized deductions for mortgage interest or charitable contributions of up to $25,000, whichever is higher. It would not allow deductions beyond that cap.  

It would also cut the corporate tax rate from 6.9 percent to 5.4 percent over the next five years. Lewis said that would still be higher than South Carolina but more in line with other states in the region.

"I can tell you that having the highest corporate income tax in the Southeast creates sticker shock whenever companies are looking to locate in our state,” he said. “Economists will verify that the best way to spur job growth, to create opportunities for people, is to cut the corporate income tax.”

The plan would extend sales tax to "the installation and repair of tangible personal items," like mechanics' labor or home repairs but would not tax other services.

The state's portion of the sales tax rate, currently 4.75 percent, would not change. The local portion of the sales tax rate would be cut from 2 to 1.9 percent.

Lewis said the bill would simplify and modernize the tax system while slowing the rate of tax growth from 4.5 percent to 4 percent. "My hope is we can find additional savings in the state budget that will let us further reduce the burden of taxation on our citizens." 

Rep. Paul Luebke, D-Durham, called flattening the income tax "regressive," but Rep. Paul Stam, R-Wake, praised the plan. 

"I thought this was a work of art, and you should be commended," Stam said to Lewis. 

Lewis said he hopes to debate and vote the bill in the House Finance Committee next Wednesday.  

In a news conference after the meeting, House Democrats panned the proposal, calling it a tax break for millionaires.

"It raises taxes on working families and reduces taxes on business," said Minority Leader Larry Hall. "That's a problem."


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  • teleman60 May 30, 2013

    Flat tax only sounds good until you think about it. The only people who benefit are those to whom 2% = thousands of dollars.
    The rest of us can just look at Glaxo with $1.5 BILLION in profits and say "Yea, they really need to keep more especially after being fined a while back for TAX EVASION."

    The GA needs to just get on with it because we're going to just have to fix it all after we kick them all to the curb next year.

  • driverkid3 May 30, 2013

    kdawg:::: creating a flat tax structure to reduce costs on the wealthy and adding service taxes for everyone else to make up the difference.

    Are you saying that "the wealthy" will not pay service taxes? Or with a flat tax "the wealthy" will not have to pay that? I think everyone should pay taxes the same way. I am disabled, but would not gripe about paying taxes like this. Not paying the taxes will not make me rich by any means, but I would be willing to pay what everyone else is doing. And if you think about it, "the wealthy" will still pay more taxes, because they will go for far more expensive stuff than I could.

  • jason19 May 30, 2013

    Flattening the income-tax is a terrible idea. I mean, if you are for that, then why not go one step further and make it REALLY fair? Make everyone pay, say, $5,000 a year in income tax -- whether you make $1 or $1,000,000. That's far more "fair" than taxing wealthy people more. If we are really flattening the rate in the name of "fairness," let's go the full way and stop making the poor millionaires pay more tax than the lowly $40,000 employee.

  • aliput5 May 30, 2013

    Does anyone have a list of exactly what services will be taxed. I am seeing vague

  • kdawg May 30, 2013

    With already one of the 2-3 strongest economies in the southeast, one could question North Carolina's need to cut business tax, particularly when it is so cheap to operate in the southeast compared to the northeast and far west. However, the idea at least has some defendable merit based on potentially incentivizing further business influx and jobs for the state. What is indefensible, however, is creating a flat tax structure to reduce costs on the wealthy and adding service taxes for everyone else to make up the difference. Just Google "flat tax bad idea" to read why, from reputable sources such as CNN Money and the Wall Street Journal. Not that our legislators would be caught reading.