@NCCapitol

@NCCapitol

Tax plan heading to McCrory

Posted July 17, 2013

— The General Assembly gave final approval Wednesday to changes in North Carolina's tax structure that backers call historic in nature, and the proposal now heads to Gov. Pat McCrory.

The package of changes, which are the first major adjustments to the state tax code in about 40 years, calls for reducing both personal and corporate income taxes and the elimination of the estate tax.

"This is a step toward getting our fiscal house in order," said Rep. David Lewis, R-Harnett, promising that lawmakers would continue to pursue changes in the future.

House Democrats put up less of a fight than Tuesday, when Republicans cut off debate after less than 30 minutes, but they still argued that the plan is more a tax cut for wealthy people and corporations than tax reform.

"I don't think one party can do tax reform," said Rep. Ken Goodman, D-Richmond.

Goodman said small businesses would see their taxes increase under the plan because a $50,000 income tax exemption would be eliminated.

Sen. Gene McLaurin, D-Richmond, raised the same concerns during the brief Senate debate, saying 60 percent of small businesses statewide will end up paying an average of $1,150 more in taxes because of the lost exemption.

Sen. Bob Rucho, R-Mecklenburg, said he doubts McLaurin's figures are accurate, saying people need to look at the entire package to determine tax liability.

Rep. Rick Glazier, D-Cumberland, called the proposal the worst possible scenario for the state by lowering tax revenue but not encouraging consumer spending or business investment.

"This is a tax cut and a tax shift but not major tax reform," Glazier said, adding that the plan could jeopardize North Carolina's bond ratings in the future.

NC General Assembly 4x3 Proposal to overhaul NC tax code speeds through legislature

The proposal would raise about $500 million less in revenue than the current system over the next two years. Over five years, revenue would drop by more than $2 billion.

Still, Lewis responded to Democratic claims that the legislation isn't revenue neutral by noting that state revenue is projected to rise under the revised tax structure by $3.2 billion, or about 16 percent, over the next five years.

"Letting everybody keep more money in their pocket creates economic growth and creates opportunities for people to better themselves, to take care of their families, to meet their obligations," he said. "We believe it is a fair and equitable way to finance the needs of this state."

The plan replaces the three-tier personal income tax system with a flat tax of 5.8 percent in 2014, which drops to 5.75 percent in subsequent years. Standard deductions increase to $7,500 for single filers, $12,000 for heads of households and $15,000 for married couples.

The corporate tax rate would be cut from the current 6.9 percent to 5 percent by 2015. If North Carolina meets revenue targets in the coming years, officials said, the corporate rate will drop even further, to 4 percent in 2016 and 3 percent in 2017.

The plan also includes the following provisions: 

  • Deductions for mortgage interest on first homes, something that had been a point of contention between the House and the Senate, will be capped at $20,000.
  • Charitable contributions will remain fully deductible for itemizers.
  • The child tax credit will continue and will increase for those making less than $40,000.
  • Social Security income will remain exempt from state taxes.
  • North Carolina's gas tax will be capped until June 30, 2015.
  • Most nonprofits will be able to claim refunds of what they pay in state sales taxes. The compromise plan puts a cap of $45 million on the amount of refund claimed in any one year, which should allow all but the biggest nonprofit hospitals to reclaim all of the money they pay in sales taxes.
  • The estate tax is repealed.
  • A deduction on retirement income is eliminated.
  • The state's franchise tax, a property tax on businesses, goes unchanged but will be studied for reform in future years.
  • Starting in 2014, the sales tax holidays for back-to-school and Energy Star products are eliminated.

Backers say the package will leave North Carolina with the 17th-lowest tax burden in the U.S., compared with the seventh-highest burden the state now has.

Commerce Secretary Sharon Decker told some lawmakers that executives of three companies called her late Tuesday to express interest in moving to North Carolina because of the tax plan, said Sen. Tom Apodaca, R-Henderson.

"This is what we were sent here to do," said Rep. Bert Jones, R-Rockingham.

295 Comments

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  • wraluser Jul 19, 5:00 p.m.

    Take in less and spend more... Yea, that seems alright, thanks GOP... /sarcasm

  • goldenosprey Jul 19, 9:06 a.m.

    "McCrory will sign it, it will become law, the world will not end, people will not be dying in the streets, people will adapt to the new levels of pay they take home, they will still spend, some even more than before, NC's economy will thrive... and a year from now none of this golo banter will even matter."

    ...and Art Pope will ride through SE Raleigh on a rainbow unicorn and poverty will literally evaporate before our eyes...

  • junkmail5 Jul 19, 8:54 a.m.

    No, you responded to the guy who said the top 10% of earners pay 71% of tax with "most don't get salaries"
    BPractical

    And as I pointed out, while some in that group DO get salaries, they also get a considerable amount of NON salary income...as that 9% of the population owns over 38% of all investment assets...

  • mep Jul 18, 7:54 p.m.

    McCrory will sign it, it will become law, the world will not end, people will not be dying in the streets, people will adapt to the new levels of pay they take home, they will still spend, some even more than before, NC's economy will thrive... and a year from now none of this golo banter will even matter.

  • BPractical Jul 18, 5:59 p.m.

    "This and That- "Actually 10% of the top earners pay 71% of the income taxes alone while only earning 46% of the income."

    Yes, but as junkmail pointed out, most don't get "salaries". They earn it off of stock market capital gains, asset appreciation etc." "We were talking about the top 1%." Plenty Coups

    No, you responded to the guy who said the top 10% of earners pay 71% of tax with "most don't get salaries"

  • Plenty Coups Jul 18, 4:51 p.m.

    "Yes, but as junkmail pointed out, most don't get "salaries". They earn it off of stock market capital gains, asset appreciation etc. Plenty Coups "

    Bpratical-"Not the top 10%. The top 1% maybe. But the top 10% is salaries over $118k. Top 5% is around $165k. That sure isn't mostly in capital gains, it's salary."

    We were talking about the top 1%.

  • junkmail5 Jul 18, 4:47 p.m.

    Not the top 10%. The top 1% maybe. But the top 10% is salaries over $118k. Top 5% is around $165k. That sure isn't mostly in capital gains, it's salary.
    BPractica

    Err... going by the charts previously given... the top 1% own 49.7% of all investment assets in the country... but the next 9% (the rest of the top 10) own 38.1%....

    So while the top 1% get MORE out of the lower cap gains rate, the remaining 9% get quite a lot of benefit too.

    The remaining 90% of those in the US own a whopping 12.2% of investment assets... so not so much for them.

  • junkmail5 Jul 18, 4:44 p.m.

    comparing capital gains tax rates and economic growth in America from 1950 to 2011, economist Len Burman found "no statistically significant correlation between the two", even after using a "lag times of five years."

    There also appears to be "little or even a negative" correlation between capital gains tax reduction, and rates of saving and investment, according to economist Thomas L. Hungerford of the nonpartisan Congressional Research Service.

    "Saving rates have fallen over the past 30 years while the capital gains tax rate has fallen ... This suggests that changing capital gains tax rates have had little effect on private saving"

    Studying economic growth and changes to the top marginal tax rates for capital gains (and other personal income) from 1945-2010, Hungerford found, “The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth

    In short- taxing cap gains lower than income is a tax cut for the rich that helps nobody else.

  • junkmail5 Jul 18, 4:42 p.m.

    "For example they own 87.3% of all investment assets (generally taxed LOWER than income) and so on."

    No one would agree with that. Nor should you disagree that regardless of percentage the overall dollars going to the government as revenue comes from the wealthy. We don't need government to step and redistribute by further increasing taxes while discouraging further investing and building business in this country.
    ThisAndThat

    Except, again, it doesn't actually work like that.

    Every single reputable study finds that investors will invest REGARDLESS of cap gains being lower than income tax.

    Because it's STILL the best place to put your money either way.

    LITERALLY the only thing a lower cap gains tax does is put more money into the pockets of very rich people.

    that's it.

    Data on that in next post

  • rhess2 Jul 18, 4:40 p.m.

    Some Republicans and even the Governor has said "we are doing what we were sent here (Raleigh) to do". Another words they have a mandate for their actions. So they think! The reality is they were mostly elected to help create jobs in the state. The jury is still out on that one, but if history is a guide don't expect miracles. They were elected due to a slow recovery of the recession, but not necessarily due to support for their party platform. If they keep on the road they are presently on the next election may prove to be a disaster for them.

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