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Senate rolls out latest tax plan

Posted July 1, 2013

— 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.

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  • junkmail5 Jul 3, 12:11 a.m.

    junkmail5....show me in your econ 101 book where a flat tax is a bad idea.
    lessismore

    I doubt you'd get it if you don't even understand folks who need food stamps just to feed themselves can't afford to also pay taxes with the imaginary money they DON'T have... but here's some reading for you

    http://goo.gl/0LmJS

    http://gazettextra.com/news/2012/sep/13/con-flat-tax-lowers-taxes-wealthy-doesnt-necessari/

    http://articles.latimes.com/2011/oct/25/opinion/la-ed-taxes-20111025

    http://money.cnn.com/2011/10/28/news/economy/perry_flat_tax/index.htm

    In short though, a straight flat tax as I've explained is mathematically impossible... it's either so low it can't raise enough revenue... or so high nobody but the well off can even pay it.

    Most seriously proposed flat taxes add complex exceptions, rules, etc to try and avoid this and end up no simpler than the system we have now, but far less fair.

    They end up as huge tax breaks for the rich and killing the middle class even worse.

  • junkmail5 Jul 3, 12:01 a.m.

    junkmail5....show me where Thomas Jefferson opposed a flat tax- lessismore

    Sure!

    "Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise."

    That's the DEFINITION of a progressive tax system. You don't tax the very poor AT ALL, and you tax the rich in increasingly proportion the richer they are.

    but everyone...that includes those on food stamps and welfare, should pay something- lessismore

    If they are on food stamps and welfare they CAN'T pay something, because they ALREADY have LESS than they need to EAT.

    How can you possibly not understand that point?

  • lessismore Jul 2, 4:51 p.m.

    junkmail5....show me in your econ 101 book where a flat tax is a bad idea.

  • lessismore Jul 2, 4:51 p.m.

    junkmail5....show me where Thomas Jefferson opposed a flat tax....

    He said he was in favor of a flat tax, but the wealthy should also pay taxes on property. His idea of fair was everyone pay into the system, but not to provide welfare..but to provide education opportunities, national defense. Things have gone sour since then. We now believe we are responsible for supporting illegals, poor nations around the world, and pay health insurance for those who don't want to work.

  • lessismore Jul 2, 4:48 p.m.

    giving our money to Washington is like putting an alcoholic in charge of the ABC store, it doesn't work. We need to develop a method of taxing Americans that eliminates 99% of the IRS. I agree that the wealthy should pay more, but everyone...that includes those on food stamps and welfare, should pay something. It's not right to be able to elect representatives that promise more welfare and not pay into the system...and that's where this country is....the politicians, mostly democrats, promise more entitlements in exchange for votes. It's almost treasonous. There has to be a way to pay taxes without having 100,000 IRS agents waiting to count it...after they take their cut for their parties.

  • junkmail5 Jul 2, 4:05 p.m.

    Tweak the precentage and it makes more sense to have a flat tax- LKG-Lover

    It really doesn't though.

    You can either make it so low that even the poor can afford it- in which case you won't take in enough to run the government.

    or high enough that you DO get enough to run the government, and then a significant number of people can't afford to both pay that tax rate AND eat.

    A flat tax is a horrible, regressive, system. This is econ 101 stuff.

  • LKG-Lover Jul 2, 3:52 p.m.

    Tweak the precentage and it makes more sense to have a flat tax. It also makes it very obvious when politicians raise taxes on the population, instead of trying to figure out every way we are getting screwed.

  • junkmail5 Jul 2, 1:08 p.m.

    You get rid of the loopholes, move to a 10% flat tax and that is fair.- sandbar33

    Except the country would shut down. Because you wouldn't take in NEARLY enough revenue.

    The rich currently pay about a 30% effective tax rate overall.

    Given they hold the majority of wealth in the county, and 10% of poor peoples money wouldn't be a drop in that bucket and all.

    Not to mention, a lot of the folks you're now hitting with 10% are ALREADY below the poverty level- so this would push them even further under.

    Everybody from Thomas Jefferson to Adam Smith, the guy who literally wrote the book on capitalism, knows how horrible an idea a flat tax on everyone is.

    Why don't you?

  • Sandbar33 Jul 2, 12:16 p.m.

    "Because those are horribly regressive and even WORSE for poor and middle class"

    And what exactly has the PROgressive tax system done for the poor and middle class? Absolutely NOTHING. There are over 60,000 pages of tax code that allows for any level of cheating and gaming the system that you can imagine which is why rich people continue to get richer and the middle class continues to slog along. You get rid of the loopholes, move to a 10% flat tax and that is fair. You can't tell me that a person making a billion dollars paying 10% of that in taxes isn't fair.

  • 42 Jul 2, 10:12 a.m.

    When the numbers are crunched 80% of NC will find out their taxes got HIKED to give a tax break for the top 20%.

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