Both chambers have passed their individual spending plans, and while both budgets add up to $22.9 billion overall, the spending plans have many differences that outline the philosophical differences between the two chambers.
Overall, the House takes a more cautious approach, limiting tax cuts while aiming to closely target the effect of state spending. The Senate, on the other hand, is bolder in its tax cut plan, while trusting North Carolina citizens as a whole to manage and lead the state economy.
Out front is the question of what will happen in the way of tax cuts between the two plans, with the Senate pushing wide tax cuts meant to trim $1 billion over the biennium and the House looking at more targeted, and more modest, tax cuts.
The House plan passed last week would have the state 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 Senate plan would go further, increasing 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 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.
Targeting those industries is meant to make the state more attractive for manufacturing businesses, but the Senate plan calls for an across-the-board cut to the state income tax for private citizens as well as businesses.
The Senate’s $1 billion tax cut plan would drop the personal income tax from 5.499 percent to 5.35 percent in 2018, and also make cuts to the state corporate income tax over a two-year period.
Those cuts, combined with the increases to the standard deduction and other tax code adjustments, are expected to cut $300 million in the next fiscal year and about $700 million in the 2018-19 fiscal year.
The House plan would cull about $500 million in taxes over the biennium.
The two plans differ in other ways as well though.
The Senate budget passed last month would direct $363 million to the state spending reserve, as opposed to the House budget, which would bolster the rainy day fund by $263 million.
The Senate budget focuses more on teacher and school employee raises, whereas the House budget focuses on modest raises for all state employees of $1,000 in each of the two coming fiscal years.
The House plan would include more investment in public infrastructure than the Senate, further highlighting the differences in the spending plans.
Comments from House leadership reflect those priorities in that House leaders have said that they seek to balance tax cuts with reinvestments in the state, while Senate leaders espouse the virtues of returning those tax dollars to the people of the state.
“This is a sound and responsible budget that does address the needs of our citizens, and does move this state forward,” Rep. Nelson Dollar (R-Wake), the chief budget writer in the House, said. “We believe this package that we have presented is a balanced approach.”
He said that the budget balances tax reductions with infrastructure investments to prepare the state to be more competitive in key areas of business such as manufacturing.
“Republicans have learned the lessons of the Great Recession, and we believe that as the times are good that we have to continue to remember those lessons and prepare for down the road, hopefully not sometime soon, when the revenues are not coming in,” Dollar said.
In the Senate the priorities are a little different, or at least the emphasis given to infrastructure developments compared with tax relief for citizens.
While both chambers fundamentally are focused on preparing the state for the next economic downturn, the roadmap to get there from each has a few differences.
Of the Senate’s spending plan, Senate President Pro Tempore Sen. Phil Berger (R-Rockingham) said, “Anyone who has seen our Senate budgets over the last six years will not be surprised that this budget continues our philosophy of improving outcomes in public education, providing generous tax cuts for the middle class and job creators, controlling spending growth and saving for the future. This is the same successful approach that has resulted in consecutive years of revenue surpluses, including this year’s $580 million budget surplus.”
Berger has also said, specifically of the deep tax cuts included in the Senate spending plan, “We think the people have a better idea on how to spend their money than bureaucrats and politicians in Raleigh.”
Where the final numbers will fall is unknown, but what it known is that these different ways of looking at the budget will be the real crux of the debate between the two chambers during the upcoming conference process.