Tax cuts, child deduction and business relief on the table under NC Republican tax plan
Republicans in the North Carolina state legislature have spent years slashing state personal and corporate taxes.
On Tuesday, state senators called for picking up where they left off, moving the corporate income tax closer to extinction while exempting more lower-income people from having to pay any income taxes.
Senate Republicans also want to spend federal funds on grants for businesses.
The move led by Senate Finance Chair Paul Newton, a Mount Pleasant Republican, comes ahead of the state budget process. Newton told reporters Tuesday that they are proposing the tax cut because “we believe people spend their money better than government does.”
But Democratic Gov. Roy Cooper’s budget proposal calls for new spending and a different take on taxes.
Cooper spokesperson Ford Porter said Tuesday that North Carolina has “a once in a generation opportunity to invest in our schools, quality child care, small businesses, community colleges, transportation, housing and tax cuts for families who really need it.”
“The last thing we need is more sweeping tax breaks for corporations and the wealthiest among us instead of investments in our hard-working families and communities,” Porter said in an emailed statement.
Income tax deductions increase
Under the plan:
▪ The income tax rate would be reduced from 5.25% to 4.99%.
The standard deduction, the amount of income on which people pay no income taxes unless they itemize, would go up by about 18.5%. That means for a married couple filing jointly, their deduction would increase from $21,500 to $25,500. For married couples filing separately, it would increase from $10,750 to $12,750. A single person filing income taxes would have her or his deduction increased from $10,750 to $12,750.
Rate increases help wealthier taxpayers more while increases in the standard deduction help lower- or middle-income taxpayers more.
▪ The child tax deduction would be raised by $500. North Carolina’s current child tax deduction is up to $2,500 a year for families who also claim a federal child tax credit.
Finance Chairs Newton, Sen. Warren Daniel of Burke County and Sen. Bill Rabon of Brunswick County announced the plan that, if it becomes law, would mean a 21% income tax cut for a family of four that earns the median household income. In North Carolina, that amount is is $54,602. The bill is a committee substitute of House Bill 334.
The reduction in the income tax rate and increase in the standard deduction would begin Jan. 1, 2022. Newton said that lower-income families would benefit the most.
“The Republican philosophy when government takes too much money from the people is to give it back in the form of tax relief,” Newton said.
Senate Democratic Minority Leader Dan Blue told reporters later in the day that there was room for compromise but that he has “great reservations about tax cuts” when they are not targeted to people the most in need.
Senate Democrats answered questions about the tax proposal during a news conference about their budget priorities. Sen. Kirk deViere, a Fayetteville Democrat, said Democrats’ philosophy is a targeted approach to spending. Blue said tax cuts that reduce ongoing state revenue could have long-range consequences.
Corporate tax phaseout
The plan would phase out the corporate income tax over five years, starting in 2024. Currently 2.5%, it would be reduced by 0.5% each year, and completely eliminated by 2028. The state has already been reducing the corporate tax rate.
“People and businesses are moving here in droves,” Newton said. “We have large cash reserves and we have yet another budget surplus.”
The state is in good financial shape, with a new revenue forecast due soon. There is already a $5 billion surplus and $5.7 billion coming to the state from the federal American Rescue Plan.
Newton predicted the state would continue to have surpluses in the future, and that the proposed tax cuts would not impact spending needs.
“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 in excess of that ... You do the best you can. So we project revenue surpluses even after the tax cut,” he said.
Newton told reporters that they still anticipate a budget surplus in the future, just not as much of one.
“Allowing North Carolinians to keep their own money is the best form of stimulus we can have,” he said.
Newton presented the bill for discussion in the Senate Finance Committee on Tuesday afternoon for discussion. There weren’t many questions. A vote will come at a later committee meeting.
Sen. Ben Clark, a Hoke County Democrat, asked Newton if the state could afford cuts in the future.
“The question we’re dealing with as legislators is, we are collecting more money from taxpayers than what we need,” Newton said.
Business grants
The Senate Finance chairs’ plan also spends federal money on grants for businesses affected by the coronavirus pandemic.
Business recovery grants would use about $1 billion of American Rescue Plan funds for automatic grants up to $18,750 for businesses that were already recipients of the COVID-19 Job Retention Program, Economic Injury Disaster Loan Advance, Paycheck Protection Program, Restaurant Revitalization Fund or Shuttered Venue Operators Grant Program.
The bill still needs to pass the Senate Finance Committee, then Appropriations. Newton said they hope to pass it through the Senate in the next few weeks. It could then end up part of the state budget if not passed separately by the House and signed by Cooper.
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This story was originally published May 25, 2021 at 1:33 PM with the headline "Tax cuts, child deduction and business relief on the table under NC Republican tax plan."