House unveils 'measured' tax reform plan

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."