The Senate has approved a major tax cut bill expected to trim $1 billion from North Carolinians’ tax bills over the next two years by reducing the income tax rate as well as increasing key tax deductions meant to benefit the middle class, legislators say.
The bill passed in a 35-14 second reading vote Tuesday afternoon, and will likely receive a third reading vote on Wednesday before being sent to the House for discussion.
The bill was subject to opposition from most Democrats, who thought the tax cut would apply to too many people, and not just the middle class exclusively.
Senate Leader Sen. Phil Berger (R-Rockingham) said that under his, and the majority of the Senate’s, view that excess money is better left with the people of the state to spend how they choose, rather than having the state spending it as lawmakers see fit.
“If we collect more than we need, then we ought to send it back where it came from,” he said.
Senate Bill 325 would reduce the income tax rate from 5.499 percent to 5.35 percent and would increase the standard deduction from $17,500 to $20,000 for married filers who jointly file their taxes.
The bill also includes increases to the other standard deduction categories, increasing the head of household deduction to $15,000, the single deduction to $10,000, and the married, filing separately deduction to $10,000 as well.
The bill is a part of what will be the Senate’s proposed budget plan, but chamber leadership decided to run the measure as a separate bill.
Sponsors of the proposal, at a press conference announcing the plan, said the plan was aimed at relieving the tax burden on the middle class and would ensure that an additional 94,000 people pay no income taxes. Also included in the plan are changes to the mortgage interest and property tax as well as the child tax deduction.
The deduction for mortgage interest and property tax would be increased from $20,000 to $22,0000 under the Senate plan and the child tax credit would be replaced with a deduction where families making $40,000 a year or less would receive a $2,500 deduction and families making up to $60,000 could claim a $2,000 deduction.
The deduction then continues up in increments of $20,000 by wage meaning a household making up to $80,000 would be eligible for a $1,500 deduction and a household making up to $100,000 a $1,000 deduction. A household making between $100,001 and $120,000 would be eligible for a $500 deduction.
Sen. Tommy Tucker (R-Union), who chairs the Senate Finance Committee, announced the tax plan that would include tax cuts for both individual filers and businesses, continuing the Senate’s pattern of tax cuts over the last few years.
“What we are proposing today is a Senate tax plan that continues the majority party’s proven strategy of reducing taxes and putting more money into the pockets of North Carolina taxpayers,” he said. “What we’re doing today, we’re proposing a $1 billion middle class tax cut, that’s right, a $1 billion middle class tax cut. And under this plan, 99 percent of taxpayers in North Carolina will either receive a tax cut, or pay zero income tax.”
Tucker said that the Senate expects to see the same types of growth in the state and job creation coming from this plan as in past tax cut plans enacted over the last five years.
“With this continued plan we expect the economy to continue to move forward as having reducing taxes in the past,” he said.
Tucker said that the tax plan is aimed at benefiting families that make $50,000 or less a year. Tucker said that the state has seen a surplus in recent years from the current tax cuts and that surplus should be used to return money to the pockets on North Carolinians.
“The people have sent us additional money, and now is not the time to be timid,” he said. “We need to give that money back to those taxpayers, which will go directly into the economy which will grow the sales tax base, which will grow the income tax base, and give people the opportunity to spend their own money instead of having the state spend it for them.”
But private citizens aren’t the only ones getting a tax cut under the Senate plan. The corporate tax rate would drop to 2.75 percent in 2018 and again to 2.5 percent in 2019 — currently the corporate tax rate is at 3 percent.
“That will make North Carolina’s rate the lowest in the U.S. for those states that have a corporate income tax,” Tucker said.
House tax cuts still in committee
The House announced its own tax cut plan alongside the Senate’s announcement last month but so far the House tax cut bill has remained in the House Finance Committee.
The House’s plan, HB356, would only raise the standard deduction for married, filing jointly, couples by $1,000 to $18,500 and would add an additional $500 for single filers bringing it to $9,250.
The House plan is expected to save about $500 million over the next two years, compared to the Senate’s plan that is projected to save $1 billion for personal and corporate taxpayers over a two-year period.
Rep. John Szoka (R-Cumberland), who chairs the House Finance Committee is running the bill in the House.
Of the bill, Szoka said, “The House tax plan for 2017 continues the good work that has been done over the last few years. Because of responsible budgeting and spending, and job growth spurred by solid economic policies, North Carolina is projected to have a budget surplus of over a half billion dollars. The House’s tax plan incentivizes good paying manufacturing jobs and continues to lower personal income taxes, setting the stage for increased economic growth.”