More tax cuts likely, legislative leaders say

State lawmakers return Wednesday to start their work for 2017, their first session sharing Raleigh with the Cooper administration. The News & Observer takes a look at four people and five issues that will matter this year. Get to know Dale Folwell, Darren Jackson, Bill Rabon and Sarah Stevens. Find out what the General Assembly could consider on taxes, election law, teacher and principal pay, House Bill 2 and Hurricane Matthew relief. And learn more about how the legislative process works.

Republican legislators could continue a shift in taxes: Cutting corporate and personal income taxes while expanding the number of services subject to sales tax.

No specific plans have emerged yet, but House Speaker Tim Moore says he “wants to see us lower taxes as much as we can at every level” and Senate leader Phil Berger says he’ll “continue to look for ways to reduce the tax burden.”

The state’s corporate income tax dropped to 3 percent on Jan. 1, down from 6.9 percent in 2013, while the personal income tax rates drops from 5.75 percent to 5.499 percent this year. Llast year’s budget raised the standard deduction – the amount on which taxpayers owe no taxes if they don’t itemize returns – from $15,500 to $17,500 over two years for a married couple, with similar changes for other types of tax filers.

Meanwhile, new sales taxes took effect in March that added to the cost of services ranging from car repairs to appliance installations. Legislators had also considered taxing pet care, veterinary and other services but decided against it for now.

The Senate might revisit a proposed constitutional amendment that would cap personal income taxes at 5.5 percent. That proposal fell short last year.

The legislature could find itself with a revenue surplus to fund further tax cuts. Last week, its top staff economist reported that revenues are $322 million ahead of projections for the six months ending Dec. 31 – or 3 percent over the target.

Democrats argue that any tax cuts should be targeted. “The Democrats will be pushing that those tax cuts go to middle-class families and the working poor,” House Democratic Leader Darren Jackson said.

This story was originally published January 21, 2017 at 5:44 PM with the headline "More tax cuts likely, legislative leaders say."