Raleigh, N.C. — State Senate leaders rolled out the latest version of their tax reform proposal in a Finance Committee meeting Monday afternoon.
"The time has come for the Senate to move the tax reform process forward," Senate President Pro Tem Phil Berger told the committee.
The newest version of House Bill 998 is closer to the House's original proposal on some key positions than before, but there are still some substantial differences.
The most significant difference by far is the price tag. The Senate proposal would cut projected available revenue by $3.28 billion over the next five years, starting with a cut of $168.5 million in this fiscal year.
The House proposal would cut far less revenue – $1.77 billion over the next five years, starting with $4.7 million this fiscal year.
"We've participated in a number of intense, but I would say productive, conversations with our House colleagues," Berger, R-Rockingham, told the committee. "We've made a lot of progress."
Some of the highlights of the new Senate plan.
- Lowers and flattens the personal income tax rate at 5.75 percent as of 2014
- Preserves the unlimited deduction for charitable contributions
- Caps deductions for mortgage interest and real estate taxes at $15,000 a year
- Would not tax Social Security benefits
- Eliminates the $4,000 exemption for retirement income
- Keeps the state child tax credit
- Sets the standard deduction at $7,500 for individual filers, $12,000 for heads of household and $15,000 for married couples filing jointly
- Eliminates the corporate income tax by 2018, instead of 2017
- Eliminates the estate tax
- Maintains the current state and local sales tax rates
- Does not tax food or prescriptions
- Would add sales tax to service contracts, but not to labor
- Adds sales tax to electricity
- Eliminates the sales tax holidays for school shopping and Energy Star appliances in 2014
- Caps sales tax refunds for nonprofits, though slightly more slowly than in the previous plan
- Caps the gas tax at its current rate from September through July 2014
Berger said the new plan takes the House position on most items in contention.
"This version resolves the vast majority of the differences that were voiced and concerns that were voiced by the House," he said.
The plan, "in the first three years alone, will put over $1 billion of money back into the pockets of North Carolina's hard-working families," he said.
Sen. Josh Stein, D-Wake, said the proposal will strip the state of revenue it will need to keep up with population growth.
"This isn't the time to be doing tax cuts down the road for the wealthy, when we have critical needs," Stein argued.
Berger says the new version leaves the state with about $3 billion more revenue than the earlier version. "It is my view that this is enough," he said.
Blaming the state's tax rates for its high unemployment rate, Berger said the cuts will "help fuel growth in jobs."
"If you don't have employers, you're not going to have employees. Making [the tax code] friendlier to employers makes it easier for us to have more employees," he said.
The proposal passed the committee on party lines. It's expected on the Senate floor Monday night or Tuesday.