Senate tentatively approves tax reform proposal

The state Senate has tentatively approved Thursday a tax reform bill that lowers personal and corporate income tax rates, with boosters saying it will create jobs and critics saying it will drain too much money from state government.

After more than two hours of debate, the Senate voted 30-17 in favor of the measure. A second vote to confirm passage is scheduled for Tuesday, at which point the measure will return to the House. Already, House leaders say they expect to have to negotiate a final version of the bill.

"Passing this bill will create jobs," said Sen. Phil Berger, R-Rockingham, the top leader in the Senate.

According to an analysis by the conservative Tax Foundation, North Carolina's tax climate for businesses would climb from being near the worst in the country to being the sixth-best in the nation. In turn, Berger said, that will bring new companies to the state and help existing companies grow.

"This is a bill that's positive for the people of North Carolina," he said.

The measure came in for criticism from some of the most seasoned tax writers in the chamber.

"The beneficiaries will be the largest corporations in the state," said Sen. Dan Clodfelter, D-Mecklenburg, a former Senate Finance Committee chairman who has put forward a tax reform bill of his own that has won praise from both Republicans and Democrats.

Clodfelter said the way Berger's bill restructures business taxes will allow the biggest companies to cut what they owe the state by thousands of dollars, shifting more of the burden to small and medium-sized businesses.

He was jointed in his criticism by Sen. Bob Rucho, R-Mecklenburg, who until this week was the leading voice on tax reform for Republicans in his chamber. Rucho's bill, which was far more sweeping, was set aside this week in favor of the Berger proposal.

Rucho resigned his Finance Committee co-chairmanship in protest, saying that top leaders were caving to special interests.

Rucho said there were some aspects of Berger's bill that he liked but said it had big flaws. Like Clodfelter, he pointed to provisions dealing with how businesses are taxed.

"What happens to the small businesses? Very limited help," Rucho said. He was also critical of the bill because it failed to close loopholes in the tax code that give breaks to some individuals and businesses but not others.

Democrats, meanwhile, criticized the plan for draining $4 billion away from state government over the next four years. Berger and other Republicans said the bill wouldn't require spending cuts but would merely slow the growth of state government.

Opponents also criticized the bill for taxing Social Security income.

"I can talk about average people," said Sen. Gladys Robinson, D-Guilford. "They just got to depend on that little pension and that little bit of Social Security."

Berger and other Republicans insisted their plan wouldn't touch Social Security, saying they analyzed different scenarios that were of concern to the AARP.

"If you're living on Social Security and that's all you're living on, you won't pay a dime," said Sen. Bill Rabon, R-Brunswick.

House leaders have been watching the Senate debate with interest. Rep. David Lewis, R-Harnett, said he is concerned about how the Senate version of the measure treats local governments. Senators end local franchise taxes on utilities and would end local sales taxes on food, allowing counties the ability to reinstate the levy if they can get it past voters.

"We in the House worked hard to keep local governments whole," Lewis said.

While all Republicans want to cut taxes, he said, the Senate measure may leave state government without enough money to operate. But he expressed optimism that the two chambers would be able to work out a final deal.

"As much work as has been done ... it would be a shame to get this close and stop," he said.