The House released a chunk of its $22.9 billion budget proposal on Tuesday –including its tax reduction plans for the coming biennium.
In a release, House leaders said that their plan will offer average and low-income families increased standard deductions and will also include cuts for the business community.
The House budget plan would increase the standard deduction by $1,000 for married-filing jointly taxpayers, $800 for heads of household, and $500 for single and married filing separately taxpayers.
The change would reflect the changes made in HB356, the House Tax Reduction Act of 2017.
House Finance Committee Co-Chairman John Szoka (R-Cumberland) introduced the House tax proposal by saying, “The House, and the Senate, since 2011 have focused on sound economic and tax policy that have led to substantial surpluses in fiscal year 2015, 2016 and 2017, a rainy day reserve of $1.2 billion and the extended unemployment debt of over $2.5 billion being repaid ahead of the federal schedule.
“There are differences between the (House and Senate) finance packages, but I assure you that the goal of both finance packages is exactly the same: to continue the good work that we have accomplished since 2011, to continue to be respectful of taxpayers’ dollars, to continue to modernize our tax code and to make North Carolina the best economically performing state in the union.”
The Senate tax cuts would increase the married filing jointly deduction by $2,500, going from $17,500 to $20,000, with single and married filing separately taxpayers getting a $10,000 deduction and heads of household getting a $15,000 standard deduction.
The House’s tax proposal would also increase the mortgage expense and property tax deduction cap from $20,000 to $22,000, effective for taxable years beginning on or after January 1, 2019, offering mortgage holders in North Carolina additional savings on their income taxes, according to the release.
Looking at the proposed business tax cuts, the House’s plan would reduce the franchise tax rate to $1.40 per $1,000 of the required base.
The rate reduction would become effective for taxable years beginning in 2019, and would apply to 2018 and later corporate tax returns.
“Lower taxes in itself is a great economic incentive both for companies that have been here for quite some time and those that we’re trying to attract to North Carolina,” Szoka said.
The House plan would include an earlier announced provision to include a sales tax exemption for distribution equipment purchased by large customer fulfillment centers to encourage manufacturing growth in the state.
“We have all seen the economy transition, and we want to encourage manufacturing here in North Carolina. We also recognize there has been a huge increase in fulfillment centers,” Szoka said. “These fulfillment centers typically take a great deal of investment and they employ a lot of people. We have actually missed opportunities the last few years because we haven’t recognized the role these fulfillment centers are now playing in our economy.”
The House plan would also include a sales tax exemption for purchasers of mill machinery, whereas the current law already includes a preferential tax rate for purchasers of mill machinery.
Of the exemption, Szoka said, “We feel this is very important to remain competitive in the Southeast, in particular with our neighboring states. Tennessee, Virginia, South Carolina and Georgia all have a zero tax on their equivalent mill machinery laws. When you speak to economic developers and corporate developers looking for places to move their companies, this always comes up, and it is a major factor in where businesses decide to locate.”
The proposed House plan and the Senate plan are very different documents, with the Senate plan cutting some programs that House leadership looks to maintain, while the Senate budget makes deeper cuts to the tax code than the House proposal.
If the House is able to pass a spending plan by the end of next week, then legislators will have three weeks to come together in a conference committee and pass a revised spending plan to present to the governor for signing before the start of the new fiscal year July 1.