Raleigh, N.C. — Republican leaders in the state House and Senate called attention to a pair of competing tax plans Thursday, with senators offering the more aggressive of the two approaches that would be worth $1 billion in personal and corporate tax cuts over the next two years.
Under the Senate plan, North Carolina's personal income tax rate would drop from 5.499 percent to 5.35 percent, and the amount of income on which residents pay no tax would expand. For a married couple filing jointly, that "zero bracket" would rise from $17,500 to $20,000. The corporate income tax rate would drop from 3 percent to 2.75 percent for the current tax year and to 2.5 percent in the following year.
That individual income tax cut would make North Carolina's "one of the lowest in the Southeast," Sen. Tommy Tucker, R-Union, said during a news conference.
In a not-so-oblique reference to the controversy over House Bill 2, the state law on LGBT rights and public bathroom use, which Gov. Roy Cooper and others have said is a drag on job recruitment, Tucker argued that tax cuts executed since 2011 have helped spur business growth.
"Despite this cloud everyone says is over our head, the economy continues to grow," he added.
Senators also want to convert the state's child tax credit to a deduction. That change is structured so that families would see slightly more of a benefit than they do under current law.
Cooper, a Democrat who has already sparred with the Republican-led General Assembly, did not offer a tax cut as part of his budget proposal, but he did urge lawmakers not to further cut the corporate income tax.
"Governor Cooper has called for tax relief that targets middle-class families because we cannot continue tax breaks for corporations and the wealthiest at the expense of education and our future," Cooper spokesman Ford Porter said. "Any cuts to the personal income tax should apply only to middle-class families who are the North Carolinians really feeling the squeeze right now."
The Senate's tax plan runs directly counter to that plea, and the state Democratic Party criticized the plan as being a continuation of policies put forward under former Republican Gov. Pat McCrory.
"Senator Berger’s proposal today shows us his true priorities," Democratic Party executive director Kimberly Reynolds said in a statement, referring to Senate President Pro Tem Phil Berger. "He wants to double down on tax cuts for corporations and the wealthiest among us at the expense of the middle-class North Carolinians who struggled under the Berger-McCrory economy."
Liberal and conservative economists have differed over how the state's economy has done under GOP leaders, who took over the legislature in 2011. But Republicans rightly point out that, despite tax cuts rolled out over the past several years, the state is running a budget surplus.
The biggest differences between Republican and Democratic budget plans this year are over how to spend the recent surge in revenue. Democrats want to put those surpluses into programs pared back during the recession, saying that increasing salaries for teachers and state workers should move to the front of the line in terms of priorities. Republicans say they want to ensure the state's budget growth doesn't outpace economic growth.
Tucker said Senate tax writers had checked with budget writers, who confirmed they would have enough money to follow through on a planned teacher salary increase if the Senate tax cut were passed.
"We'll be able to meet those commitments that have already been made," he said.
House plan more modest
The lead tax writers in the state House filed their own tax reduction bill earlier this week. It is a more modest approach, cutting about $127.5 million in personal income taxes by expanding the zero-bracket. The plan also scales backs taxes on mill machinery and taxes other steps to help corporations.
"The House's tax plan incentivizes good-paying manufacturing jobs and continues to lower personal income taxes, setting the stage for increased economic growth," Rep. John Szoka, R-Cumberland, said in a news release.
It is not unusual for Republicans in the House and the Senate to offer dueling tax plans. Last year's budget represented a compromise between the two chambers. It's also not unusual for the Senate to be the more aggressive of the two chambers when it comes to offering up tax cuts. For example, the state Senate has proposed lowering the constitutional cap on income taxes, which House lawmakers have balked at in previous years.
That means neither of the plans rolled out this week are likely to make it into law as is.
"The chairs of the House and Senate Finance Committees have been talking," said Rep. Bill Brawley, R-Mecklenburg.
There are parts of both plans, Brawley said, that both sides agree on while others have already provoked some disagreement. That said, he added, negotiations between the two sides are "expected to be a little more collegial" than is sometimes the case.
Because of how the House tax cut works, the impact would be more strongly felt by the state's lowest income earners. The Senate plan was touted as a middle-class tax cut, with the bulk of the impact coming for those who earn between $20,000 and $100,000 per year, Tucker said.
The biggest benefits from the Senate plan would be felt in less wealthy, rural counties, according to a map distributed during the Senate's tax plan announcement. For example, while those in Wake County would see their taxes dip by 7 percent on average, the average tax cut in the state's poorest counties would be as high as 40 percent.