GOP lawmakers roll out tax cut proposal
Republican North Carolina senators unveil a plan to cut individual income taxes.
come thank you for being here. We're pleased to explain our proposed tax package to you and thank you for your interest. I'm Senator paul Newton and I co chair of the Senate Finance Committee together with senators Bill raven and warned Daniel. And uh, later today our committee will hear the proposed tax cut package. So I'll walk you through the details here and the rationale behind it. Eight years ago, the Republican led General Assembly overhauled the state's tax system. We've moved the effective personal income tax rate from a high of more than 8%,, Two down to today's 5.25%. We've increased the zero bracket those paying no income tax in the state of North Carolina from $6,000 per year to $21,500 per year. North Carolina's low taxes, low cost of living and the sheer beauty of the state have led families to move here from all over the country And our pro business policies moved North Carolina from among the worst business rankings in the country to the top 10. The results of those policies are clear, people and businesses are moving here in droves. The largest company in the world just announced a new campus, its first new campus in years right here in north Carolina. Responsible governance also means we've come out of the pandemic recession far better off than most states. We have large cash reserves and we have yet another budget surplus the sixth and seven years. The Republican philosophy, when government takes too much money from the people, is to give it back in the form of tax relief. In our view, it's never, never the government's money, it's the people's money. So we are proposing yet another tax cut because we believe people spend their money better than government does. First, I'll go over the proposed tax cuts to the personal income tax. We proposed reducing the personal income tax rate from 5.25% today to 4.99 and increasing the zero tax bracket from $21,500 to $25,500. We also propose increasing the child tax deduction across the board by $500. That deduction is income based. So a family earning less than $40,000 per year would receive a $3,000 deduction per child. And the amount decreases higher up the income chain until it reaches zero for a family earning more than $140,000. What does this mean for regular taxpayers? Here are a few examples. Every family's tax situation is a little different. So I'll just use a standard family of four for each of these examples, with two Children, A family earning about $38,000 would see their income tax declined by a full 50%. So 50% tax reduction, if you earn around $38,000 and have two Children, A family earning the median household income, which is about $54,000, would see their income tax declined by 21%,, And a family earning four times the median income to about $218,000 would see a more modest 6.9% decline, opponents of tax cuts usually try to paint every proposal regardless of the details, as some sort of tax giveaway to the rich. As you can see from these examples, that claim would be a false narrative under this plan. The big winners from these tax changes are those near the bottom of the income scale. This plan is disproportionately helps those in lower-income tax brackets. Those earnings earning less than $50,000 per year will comprise an even smaller share, a smaller share of the state's tax collection, So 8.8% as opposed to the 10% today. And those earning more than $200,000 Will comprise an even larger share of the tax burden, 44%, compared to today's 43.4 Over the next two years. The value of this tax cut to families in North Carolina is more than $2.1 billion. Again, that's not the government, government's money, that's money they earned. See that is a the sound of of agreement right there. That's what that means. We agree, do it again. That's not the government's money. That's money that north Carolinians earned and that they will keep, which, by the way, makes it the very best stimulus in the world. I mean, when a, when a north Carolinian can keep his or her own money and spend it as they see fit, it's a much more efficient way to stimulate our economy than having multiple tax dollars go to our federal government lose value in the waste heat of the government bureaucracy only for a portion of fraction of those dollars to be returned to taxpayers with borrowed money. That's not a sustainable stimulus. But allowing north Carolinians to keep their own money is the best form of stimulus our economy could have. The personal income tax cut is far away, the largest component of this package. That's at the $2.1 billion dollars value of the tax cut to families. But now I'll discuss the business related parts of this proposal. We're providing an additional round of business recovery grants with the award capped at 18,750 so businesses in north Carolina who received assistance from any of the following programs will automatically receive a grant That's COVID-19 job retention program, Economic injury, disaster loan, advance paycheck protection program, Restaurant revitalization fund shuttered venue operators grant program. So if you as a business, a small business in north Carolina qualified for any of those grants or loans, you will be automatically qualified in the grant program that I'm describing here today. So the goal of this program is to provide additional assistance to businesses that were affected by the pandemic induced shutdowns and recession. The businesses that are eligible are those already that have already received pandemic assistance and that means they've already demonstrated that they were distressed. Most businesses will automatically receive a check in the mail by October one. And finally, we're proposing to gradually phase out the corporate income tax. We're joining other states like texas, Nevada and Washington, that have no corporate income tax. The Legislature brought north Carolina corporate income tax from one of the highest in the country to the lowest. And that's excluding just the state, the states with 0% corporate income tax. We have the lowest corporate tax of those who tax corporations and the result has been a jobs boom. There's a reason major companies are moving to north Carolina. But and favorable business climate involves a host of factors that tax structure is at the top of those factors. We propose to reduce the corporate income tax rate by .5% per year, beginning in 2020 for until it reaches 0%, which would be 2028. And I'll close with just a few numbers for your consideration over the past several years. The value of the personal income tax reduction over the next several years, the value, the personal income tax reduction is over $1 billion per year. While the corporate income tax changes are less than half that less than 500 million in each of the first three years, the state collects less than a billion from the corporate income tax, so personal reductions will far outweigh the corporate tax changes proposed in this bill. And opponents of any tax cut like to falsely alleged that we've somehow short changed education investments in favor of tax cuts. Let's be clear Republicans have increased state funded per pupil spending by 39% over the past 10 years, and we expect that trend to continue responsible, responsible budgeting means we're not wasteful and we leave room for important priorities like education. It's not an either or proposition. We've cut taxes for the last 10 years, 8-10 years while simultaneously investing record amounts in our education system. And this proposal is no different. So with that, I'll turn the floor over to my co chair, Senator raven and Daniel Bernie, additional comments they'd like to make. And then we're happy to answer any of your questions. Thank you. Mhm. Thank you. Senator paul Newton for that Really great description of the tax package. You know, this is the reason that I came to the legislature and I've stayed here for 10 years is too, do things like delivering tax relief to the people of north Carolina. I'm proud to continue doing it. For me. This is every two years. This is like christmas the day that the Senate unveils its tax package. And I'm proud to now be a part of the finance team and get to work with these two great senators on this package. So, um we're glad to answer any questions. And Senator, thank you very briefly, uh Senator Newton went over the package with you, and so you have all that, but, uh, like Senator Daniel 10 years ago, uh, one of the uh, things that I wanted to accomplish and that we have accomplished is tax reform in the, in the state of north Carolina. And when we did that the first time, uh, the uh, uh, the future was not that certain. We thought that our tax cut would work. We thought that it would increase availability to uh, individuals in the state and that it would stimulate the economy because by economic principles, it should, and it did. And so I think now going forward, uh we have a track record, we know what to expect. Uh and by doing this, we will further stimulate uh, the state's economy. And at the same time, we will provide certainty uh to uh businesses, both private and corporate uh and to individuals, uh letting them know that as we go forward, they're going to have their money uh to do with as they please. And that the state will uh be good stewards of the money that we do get from them. So I'm very proud to be part of this. Uh It has been like my cohorts and co chairs. It has been something that uh I uh believe very strongly and and I think going forward, you're going to see by these efforts uh north Carolina to continue to grow and for businesses and people uh internationally and nationally want to be here and to be part of our state. Thank you very much for coming today. Alright. We're happy to answer any questions. Yes Sir. Center, I want to talk about the corporate income tax. If it's not that much money to reduce, why not just go ahead and start it with the next physical with the next tax year? Or is this or is this some kind of strategy to try to win over uh Governor, Governor cooper on this by saying we're not gonna do it for at least, you know, two or three years. No, I think anytime you're reducing at least on its face, you're reducing uh state revenues in our central staff cannot project growth, even though empirically we can prove it's happened every time we've got taxes, so revenues more than make up for the reduction in tax revenue, um, you know, uh collections more than make up for the tax revenue loss through tax deductions or reductions. I'm sorry. Um, we do that here. I mean, we looked at the numbers, we want to make sure we have plenty of headroom for good things like education excellence, uh we're not gonna sacrifice those things that a good state government needs to do. But in order as you know, for uh taxpayers to come out ahead, our state to come out ahead, you've got to balance fiscal constraint with revenue growth. And so we've just tried to do that in this cut at the tax package, I suspect with, between negotiations, we hope there will be negotiations with the governor and with the House, uh that will continue to keep the essence of this package, but we're certainly willing to move things around and the sooner the better on tax cuts. Yes. With the surplus that's been the past several years, do you still want to surplus? Is there a certain amount that you don't want to get to the point where there's not this extra money and then tied to that also? Um, you know, would this be possible without all of the federal money that's come down the past year, as far as covid spending at the state, doesn't. Sure. Let me answer the second question first, these tax cuts have nothing to do with the federal stimulus money. We have been studying anticipating expecting tax cuts based on north Carolina revenues being higher than projected. So let's be crystal clear about that. And, um, you know, is there the optimal amount of reserves if you assume Nirvana would be, you know, exactly what state government needs to deliver to its citizens. You know, exactly what that costs and you don't collect revenue, uh, in excess of that. That way taxpayers are paying what they need to pay, not more than they need to pay for proper government. That's, you know, you that's an imperfect science, right? You do the best you can. So we project revenue surpluses even after the tax cut, as far as the eye can see on um basic basic assumptions around 3.5 to 4% growth in revenue in the state, so we're fine, we're fine. And hopefully we'll be back up here three or 4 years from now picking a number giving you another tax cut package. Where does this, does this go along with the houses? G. Mhm. Mhm. Ones was allowed businesses to deduct the expenses that they we believe in. That is a better alternative. So, uh the p P. P. Uh tax conformity to the federal treatment of the expense deduction helps a subset of a subset of our business community. Our grants would reach somewhere between 300 and 400,000 businesses in North Carolina. They would benefit from the grands. The P. P. P plan from the house would help a subset of the some 200,000 p p. P recipients. So we're gonna more than double the reach of financial relief to our business community, focusing on small small businesses in particular. So I'm noting that you're saying that the greatest benefits accrue to the folks at lower tax brackets. So that's basically folks who are below 150% of federal poverty, which is what about 1000. So it begs the question for me, those are folks with benefit for Medicaid expansion. If there is extra money, why not do that? Because that definitely would not just affect a subset of a subset would be about 0.5 million people. Yeah, well for starters it's a sliding scale. So it's still largely beneficial to uh lower income north Carolinians uh that make more than what you describe second. We're in the sort of still the effective but beginning stages of Medicaid transformation and I think we should give that an opportunity to work a little more about the franchise tax reduction in terms of which types of businesses are most likely to benefit from that, in what kind of uh tax implications that has for them going forward? Happy to. So as we attack the franchise tax, as you know, the franchise tax punishes companies for making capital investments in north Carolina. We're one of a very minority number of states that have a franchise tax to begin with others, cabinet like $10,000. But what companies in north Carolina have to do for the privilege of being here is make three different calculations every tax year and then they're taxed on the highest of those calculations and the two that we're going to eliminate are the ones that Really discouraged capital investment and job growth in North Carolina. And they're what we call the property tax legs. So one would be the actual amount of your tangible property in North Carolina and the other is 55% of the appraised value of your property in North Carolina. So think about North Carolina. Local state businesses, that's likely what they pay their franchise tax on because they've invested in our state. Those will go away. The net income calculation would remain and that is largely paid by out of state corporations who pay based on the percentage of their net worth That is earned in North Carolina from North Carolina citizens. So we think it's a fair way to go. It cut, it leaves 75% of the franchise tax in place now, we'd love to take it to zero. But again, the Balancing Act has to happen here and maybe we think it's gonna be, it's just a timing issue eventually we'll get to the rest of it. Why does cigar tax cut? Well, actually, it's an increase. It's not a tax cut. Yeah. So basically they just, the policy behind that is leveling the playing field between out of state cigar suppliers to north Carolinians and homegrown cigar suppliers. The out of Staters avoid the excise tax on cigars today. And this would level the playing field. Mhm. What was the decision made on unemployment benefits being taxed or not taxed? And what is the logic? Thank you. Yeah. So it's very common for us to decouple from federal provisions, tax provisions in in our act every year. And we are going to do that with respect to unemployment insurance benefits as well. And the reason for that is north Carolina offers the very best unemployment benefit in the nation and that's a job and we have ample jobs available. Business owner after business owner is complaining to us that they cannot get people to come to work. So I think especially in this day and age of incredibly generous federal subsidies for the unemployed, we would be not serving them well nor serving our business community well. If we piled onto that and added additional benefit and incentive to stay home, we need we need folks at work. Yeah. Uh huh. Well, here is asking. Yeah. Stephen taxes on that. I don't understand business is struggling to hire people, assets are not, that's well, it's a policy decision that we've made. We've always had that policy in place. This is nothing new, unemployment insurance benefits are taxable, it's income to the recipient. And especially in this context where businesses are pleading with us to encourage people to get back to work and fill empty slots, we would be we believe be remiss in changing our longstanding state policy and making those income that income tax free. Yes, I see. Uh very specific types of businesses singled out in this one is bail bonds, the other is short term vehicle rentals. Uh Why go after tax policy specific to those? And sure, thanks for that detailed question. Um The bail bonds is simply a matter of the fact that uh that insurance companies are paying gross premiums tax on what amounts to a bundle of services the bail bondsman are sending up as a taxable item. It's really not, I mean it involves much more than the insurance product that they're buying. So we're simply saying bail bondsman, uh Surety providers should not have to pay a gross premiums tax on something that's other than the insurance costs. So we're asking them to separate it out and it would decrease the amount of tax being paid by, uh, insurance companies for surety on bail bonds. Um, the second is another effort to bring parody to the marketplace on a, from a tax policy perspective. And that's the PDP, the, um, the short term car rentals that are going through an aggregator and online aggregator currently not being taxed, it's a new issue, right? Um, for north Carolina and many states and Touro is an example and they don't pay the same level of taxes that the enterprises or the hurts pay on a regular basis. So this is an effort by charging sales tax on those transactions, uh, that, that they would, we would level the playing field and, and, and stop a distorted lee, uncompetitive situation that the PDP car rentals offer. Yes, piggybacking off of her question on the cigar tax. Looking at, you know, it's pretty well documented that raising cigarette taxes actually dissuades people from smoking. Is there any thought about bumping up the cigarette tax as well? We have one of the lowest in the nation. We haven't talked about it in this bill. You make a good point. That's something we'll think about. But the timeline on this is this means the Senate going to pass this and then it will just end up for your budget. Is it, does any of this point in the separated out? Fair question. Your guess is almost as good as mine on that. Uh, we hope to pass it out. Hope to get it over to the house. In the meantime, we hope to talk with the governor's office about good things that we can agree on in this package. The plan. Sorry. In fact, this is not going to be a part of it, but right. I'm not saying that it probably will be typically yes. Any estimate on what the tag would be for changing the medical expense deduction for? They have that figure here. I'll see if that's broken out. Yeah, I did not seem to have that number in front of me. That being the physical note. Yeah. Okay. $22.5 million 23.3 and essentially the same moving out. Thank you. Anything else you've got the right person here ask that question. We uh we're going to we're going to hear this bill today. And uh in finance, we're not going to vote it today. We will then uh then hear it again. It will have to go to approach after it leaves finance. Hopefully we can vote it out of uh one of the future meetings of finance quickly and the next week or two, then it will go to a probes and then to the floor. Uh I would expect at this time that uh we will try to uh run this through the senate of the stand alone. We'll send it to the House if it does not move for any reason. And I hope it does. You can help us with that if you'd like to uh if we'd appreciate it, if it does move through the House and go on to the governor, that's great. For some reason it's stalled or uh if it is vetoed, then I would expect it to be in the budget. But we'll see. We'll say that those are unknown. Right? Well, thank you. Everyone appreciate your time. That is so well deserved. We'll take that under advisement. We can use it. Thank you. Thank you very much. A pretty good job. How are you? My friend threw up. Yeah. I think everybody your clothes you want to do it. How?