The following article was written by Matt Caulder and is reproduced from yesterday’s NC Capitol Connection:
Both the House and the Senate have put forward tax cut plans for the coming biennial budget. The competing plans will be discussed in earnest as legislators work to craft a budget plan to send to the governor for signing before the new fiscal year starts July 1.
The Senate passed a bill that included roughly $1 billion in tax cuts earlier this month, while House legislators have a bill waiting in its finance committee that would cut taxes by about $500 million over the biennium.
The Senate bill includes changes to the state personal income tax system aimed at relieving the tax burden on the middle class that would ensure that an additional 94,000 people pay no income taxes.
The plan also includes changes for married couples and those with children as well as a cut to the corporate income tax rate.
Sen. Tommy Tucker (R-Union), who chairs the Senate Finance Committee, announced the tax plan 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 [is] 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.”
The House plan, titled the Tax Reduction Act of 2017, would also make adjustments to standard deductions but would largely make targeted changes to the tax code as opposed to the broader changes the Senate plan included.
Of the bill, Rep. John Szoka (R-Cumberland), who chairs the House Finance Committee and is running the bill in the House, 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.”
There have been hints in the legislature that the House might come up with sweeteners to its plan, but with the session already moving along, time is short for big changes.
Under the Senate plan all of the standard deductions in the personal income tax code would be increased, with the standard deduction for married couples filing jointly rising from $17,500 to $20,000, the deduction for heads of households rising by $1,000 to $15,000, and the deductions for single filers going up from $8,750 to $10,000.
The House bill would only raise the standard deduction for married couples filing jointly by $1,000 to $18,500, and it would add an additional $800 for heads of household, and a $500 increase for single filers , bringing it to $9,250
Income tax cut
The Senate plan would cut the personal income tax rate from 5.499 percent to 5.35 percent. The House plan does not include any changes to the personal income tax rate.
Also included in the Senate bill is a provision that would cut the corporate income tax from 3 percent to 2.75 percent in the next fiscal year and again to 2.5 percent in the following year.
The change would make North Carolina the state with the lowest corporate income tax among states that do have such a tax.
The House plan also does not make changes to the corporate income tax rate.
Franchise tax changes
The Senate plan would make changes to the state franchise tax that Senate leaders say would reduce the tax burden on small businesses and S-Corporations. This plan would create a flat $200 tax on the first $1million of a business’ net worth.
The House plan, by contrast, would cut out the current two-pronged system of paying the annual franchise tax in favor of the more straightforward method of paying $1.50 for every $1,000 of its net worth, not to exceed $150,000, capping the fee at $200.
Senate plan changes
The Senate plan includes a variety of other changes that are not reflected in the House bill, including an increase to the cap on the itemized deductions for mortgage interest and property taxes by $2,000, increasing from $20,000 to $22,000 for a married couple filing jointly, as well as making proportionate changes to other filing classes, as well as the elimination of treating married couples and single filers the same.
Under the Senate bill, the deductions for single filers and married people filing separately will be capped at $11,000 while the deduction for heads of household will be capped at $16,500.
Legislators say the change will eliminate the unfairness of the marriage penalty that currently exists in the law.”
Another change in the Senate bill for North Carolina families would come in the form of eliminating the state child tax credit and replacing it with a new, larger tax deduction that would range from $2,500 to $5,000.
House plan changes
The House bill covers some areas that the Senate bill doesn’t, including exempting mill machinery from being taxed, allowing manufacturers to purchase major machinery tax-free in the state.
The preceding article was written by Matt Caulder, State News Reporter at NC Capitol Connection. It first appeared on their website on April 19, 2016.