RALEIGH — Senate Republicans pressed ahead Tuesday with passing a tax reduction package of more than $1 billion over the next two years, convinced the plan will contribute to the expanding state economy and generate more revenues, as they say recent tax cuts have done.
By a 35-14 party-line vote, the chamber gave initial approval to the measure after familiar arguments between Democrats and Republicans about who should benefit from tax cuts and surpluses.
Senate GOP leaders described the plan as the latest step in overhauling the state’s tax system, which began in earnest in 2013 under GOP rule in Raleigh. They say the tax reductions are helping the state’s economy attract businesses and create jobs, which in turn keeps tax revenues robust despite the rate cuts. State economists recently projected a $550 million surplus for the fiscal year ending June 30.
“We believe that the people of North Carolina can spend their money better than can the government,” bill sponsor Sen. Tommy Tucker, R-Union, said during floor debate.
One more Senate vote is needed Wednesday before it heads to the House, which has proposed its own tax plan that would cost $368 million over the next two years. The competing plans are likely to be a major component of Senate and House negotiations in the final weeks of the General Assembly session this summer.
Democrats, including new Gov. Roy Cooper, have been critical of past tax cuts they say benefited the wealthy and out-of-state corporations too much and meant billions of dollars were unavailable for systemic needs in public education, health care and infrastructure.
The Senate GOP plan would reduce the state’s individual income rate of 5.49 percent to 5.35 percent in 2018, which also applies to many small businesses. The amount of a wage-earner’s income not subject to income taxes also would increase. For example, the standard deduction for a married couple filing jointly would increase from $17,500 this year to $20,000 in 2018. The child tax credit would be converted into a deduction that Republican says would result in a higher tax write-off for low-income families.
Before a 2013 tax overhaul, the top individual tax rate was 7.75 percent and the corporate rate was 6.9 percent.
Other business tax changes would extend the tax-favored status for manufacturers who invest and employ in North Carolina to cover serviced-based companies. The state’s 3 percent corporate income tax — already the lowest in the nation among states with such a tax — also would drop to 2.75 percent in 2018 and 2.5 percent in 2019.
The Senate defeated an amendment by Sen. Ben Clark, D-Hoke, that in part would have eliminated that proposed corporate rate cut and would have limited higher standard deductions to tax filers making adjusted income of up to $200,000.
“I believe that this is a fair tax cut all across the board,” Clark said.
Senate Republicans said the plan overwhelmingly favors lower- and middle-class families the most in terms of effective tax rates. They estimate another 94,000 additional families would be removed from the state’s tax rolls.
“The poorest counties are getting the lion’s share of this money back into their communities,” said another bill sponsor, Sen. Jerry Tillman, R-Randolph.
Cooper’s budget proposal, released last month, offered to revive a child and dependent care tax credit, at a cost of $53 million in its first full year.