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In tax bill negotiations, McCrory’s office tries for middle ground

By John Frank
jfrank@newsobserver.com

RALEIGH As part of the high-stakes tax overhaul negotiations, Gov. Pat McCrory’s office distributed a scenario that appears to offer a compromise – but one that suggests a much more modest tax cut than Republican lawmakers desire.

The document that State Budget Director Art Pope recently sent to select House lawmakers outlines a concept that would gradually reduce state income taxes and expand the sales tax to dozens of additional services, such as car repairs and appliance installations. McCrory reviewed the alternative proposal before it was shared with lawmakers, but his office was careful to say he did not endorse it.

In the first year, the plan is revenue neutral, though an analysis from the governor’s office shows it could add state tax dollars. In the next three years, the cuts to state revenues from tax breaks are modest, limiting spending by a fraction of what House and Senate Republicans leaders are proposing.

For months, McCrory has refused to offer specifics about what he wants to see in the tax bill, publicly remaining on the sidelines despite making it a cornerstone of his 2012 campaign. But as the document indicates, his office is playing a key role behind the scenes trying to broker a deal, even though the governor’s spokeswoman declined to say whether he supported the compromise vision offered by his budget office.

Communications Director Kim Genardo called it an analysis sheet. “This is not his vision,” she said in an interview Tuesday night. “This is a run of the numbers to look at different scenarios so that all options are on the table.”

Earlier this year, McCrory spoke publicly against Republican Senate leader Phil Berger’s tax plan, saying he favored the more measured approach put forth by House lawmakers. And in many respects, the document reflects a middle ground between the dueling House and Senate plans.

The outline proposes a flat 5.6 percent personal income tax in 2016 – between the House’s suggested 5.9 percent and the Senate’s 5.25 percent at full implementation. The current system is tiered by income bracket with the highest rate at 7.75 percent. It does not include a state tax on Social Security income, which the Senate is proposing.

The scenario envisions lowering the current 6.9 percent corporate tax rate to 5 percent in 2016, which is identical to the latest House plan. But Senate Republicans want to go much further, eliminating the tax entirely in 2017.

It also includes a cap on nonprofits’ sales tax break at $100,000 in 2016, mirroring the Senate plan. In the House plan, nonprofits keep their full exemption, reflecting pressure from churches, hospitals and other nonprofits that worry that any change will severely limit their ability to operate.

Expanding the sales tax

The expansion of the sales tax pitched by the House is part of the equation. It would extend the sales tax to many repair, maintenance and installation services. But House lawmakers recently abandoned this component, moving in line with the Senate, which does not want to significantly broaden the sales tax base.

The biggest difference is the price tag. The Senate plan cuts tax revenues $174 million in the first year, while the outline from the governor’s office would keep state revenue growth closer to current levels, providing more money to pay for government services, such as transportation, education and health care.

Sen. Bob Rucho, a Charlotte Republican working on the tax overhaul, declined to comment on the governor’s ideas, saying he hadn’t studied them in detail.

House Speaker Thom Tillis’ office did not respond to a request for comment.

Frank: 919-829-4698
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