Senate gives tentative approval to tax cut

Republican backers say the measure will spark job growth. Democratic opponents say the measure will require service cuts in order to curb taxes for corporations and wealthy individuals.

Posted 8:12 p.m. Jul 2, 2013 — Updated 10:37 p.m. Jul 2, 2013

Mark Binker

RALEIGH, N.C. — The state Senate has given tentative approval to a bill that falls short of the grand overhaul of North Carolina's antiquated tax system but cuts rates for individuals and businesses.

After voting 32-15 Tuesday, Senators will vote a second time on Wednesday before sending the measure back to the House, which has pushed its own version of a tax bill this session.

"I wish we could get more, but I'll take what we can get," Sen. Buck Newton, R-Wilson, said.

In many respects, the bill passed Tuesday represents compromise with the state House. The proposed 5.75 percent personal income tax rate is a midway point between the House proposal and an earlier Senate draft. The Senate bill also backs off a plan to change how Social Security income is taxed and compromises on how the state would deal with sales taxes.

But the Senate bill still raises $1.5 billion less than the House plan would over the next five years, a gap that has been a sticking point in negotiations.

"There's been a good deal of work done on trying to find some common ground," Senate President Pro Tem Phil Berger said.

Senators made one change to the bill that came out of committee Monday. They expanded a one-year cap on the state's gas tax to two years.

The measure drew condemnation from Democrats, who said it amounted to a tax cut for businesses and high-income earners that will come at the expense of lower-income citizens.

Analysis by the legislature's nonpartisan fiscal staff showed most taxpayers would pay less under the plan. However, individuals making $20,000 per year would pay slightly more – about $48 per year – under the plan. A couple married filing jointly earning a combined $40,000 would pay about $380 less per year.

"This bill is not tax reform," said Sen. Josh Stein, D-Wake. "This bill is a tax cut to the wealthy and out-of-state corporations."

Stein blasted the measure as not providing sufficient money for government services.

"Will we ever give the teachers of North Carolina pay raise again?," he said. "They're already 48th (in the nation). Do we want them to be 50th?"

That prompted Sen. Jerry Tillman, R-Randolph, to dismiss Stein as championing "liberal giveaway" programs.

"That money will be spent in the economy," Tillman said of the tax cuts.

Another focus of attack for Democrats were provisions in the bill that would cap the sales tax refund for nonprofit corporations at $2.85 million per year. That amount of refund would require a nonprofit to spend $40 million per year before they would exceed the cap on sales tax refunds.

Sen. Dan Blue, D-Wake, said such a rule "penalized success" of big nonprofits such as WakeMed and Rex Healthcare. Only about a dozen health systems and two universities – Duke and Wake Forest – would end up paying some sales tax under the rules.

"The ones that are above that threshold are institutions that are organized as nonprofits but are institutions that pay their (top) employees ... six- and seven-figure salaries," said Berger, R-Rockingham. "Those institutions, we felt, probably could withstand this."

The state House is not in session this week, so it was not immediately clear how top leaders in that chamber would react to the Senate bill.

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