RALEIGH — In a vote so quick it left lawmakers stunned, a House panel rushed to approve a sweeping tax bill Tuesday with a $1.5 billion cost to state revenue.
Only in the moments after the committee adjourned did lawmakers realize they never debated the actual legislation, even though sponsors say it is the biggest overhaul of the state’s tax system in more than a decade.
Supported by Gov. Pat McCrory, the bill adds a sales tax to numerous exempt services, such as car repairs and appliance installations, to pay for moderate cuts in personal and corporate income taxes. The vote was the first this year on a major tax overhaul measure – though it came with much consternation and split political loyalties, underscoring the difficult path ahead for the top Republican legislative priority this session. Another committee will consider the bill Wednesday and the full House may vote as early as this week.
In a split vote, the Finance Committee removed a cap on tax deductions for mortgage interest, charitable contributions and property taxes. The change reduces state revenues by an additional $500 million.
Overall, the House tax proposal reduces the state’s tax dollars by $1.5 billion over the next five years as the plan is implemented. By fiscal year 2017-2018, revenue will be cut by $462 million, further limiting what lawmakers can spend on government services such as education, transportation and health care.
The amendment split two Republican finance committee leaders. Rep. Julia Howard, a Mocksville Republican and the senior chairwoman, pushed for the change.
“I think it’s egregiously unfair” to homeowners, Howard said of the cap on deductions. “It’s money that has been swept up to (pay for) the disguise of tax reform.”
Bill sponsor Rep. David Lewis, a Dunn Republican and fellow committee co-chairman, opposed the amendment. “With the pressure that we are under to fund essential state services this amendment simply goes a little bit too far,” he said.
The panel later defeated a Democratic amendment to further cut the corporate income tax by keeping the current income tax rate on millionaires. Another amendment to end the state’s film tax credits at the end of the year – a year before they are set to expire – was defeated by a rare split 15-15 vote.
Skipped in the process
All three proposed changes elicited heated debate and consumed the roughly hourlong meeting. The committee never considered a half-dozen additional amendments, nor the legislation as a whole. House GOP leaders pushed for a vote on the bill despite objections from Republicans and Democrats.
“I just think something of this magnitude for this state needs more than an hour and 15 minutes,” said John Blust, a Greensboro Republican.
Democrats echoed the sentiment and condemned the quick voice vote at the end. One Democratic amendment would have removed a provision that raises the sales taxes on electricity bills. “I’m not sure why they are afraid of the ideas the committee would bring forward,” said House Democratic leader Larry Hall of Durham.
Lewis declined to discuss the vote, and an aide to House Speaker Thom Tillis cut off further questions and rushed Lewis from the room after the meeting.
Flat tax measure
The legislation would set the personal income tax rate at a flat 5.9 percent, shunning the current tiered system assessing 6 percent to 7.75 percent based on income. The corporate tax rate would also decline over the course of five years to 5.4 percent, from the current 6.9 percent rate.
It varies widely from a competing plan offered by Senate Republicans that further cuts taxes and extends the sales tax to about 130 services that are currently exempt. It remains unclear whether the two chambers will find an acceptable compromise measure.