State Senate Republican leaders said they would push again this year to further lower personal and corporate income rates – taking a step beyond the GOP tax overhaul package passed two years ago. They filed a bill Thursday that they said amounts to $1 billion in additional tax cuts.
The “Job Creation and Tax Relief Act of 2015” would lower personal income tax rates to 5.625 percent in 2016 and 5.5 percent in 2017. The current rate is 5.75 percent, down from 7.75 percent several years ago.
Senate Bill 526 would also give North Carolina residents options about the taxes they pay on income. Under the plan, taxpayers could choose to use a zero percent bracket that would apply to some income or choose to itemize deductions now available, such as for mortgage interest, property taxes and charitable giving.
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The new zero percent bracket would apply to as much as $20,000 in income.
Single filers would pay no tax on their first $8,750 of income in 2016 and on the first $10,000 of income in 2017.
For married couples filing jointly, the exemption would be for their first $17,500 of income in 2016 and their first $20,000 of income in 2017.
“I’m tired of hearing that we only do this for the rich,” said bill sponsor Sen. Jerry Tillman, who added that a married couple earning $46,000 would save $350 a year under the plan. “Everybody’s going to benefit.”
The bill would also reduce the corporate income tax rate to 4.5 percent in 2016 and 4 percent in 2017 – regardless of whether the state hits revenue levels required in the 2013 tax bill to lower corporate rates.
“We need to get below South Carolina, which this bill will do,” said Tillman, an Archdale Republican. “We’ll be able to out-recruit South Carolina (for jobs). They’ve had the leg up on us, and they’ve gotten the big projects.
The bill is also sponsored by senators Bob Rucho and Bill Rabon. They said the cuts can be made while balancing the budget.
But they said the details of how the state would deal with the reduced revenue have not been worked out.
“That’s a matter of the Senate and House working together to figure out how we fund it,” Rucho said.
Earlier income tax cuts were funded in part by applying sales taxes to things like movie tickets. “That could be one of the options – broadening the sales tax base. We will hopefully work in that same direction that will give us the resources to put back in the pockets of the people.”
Tillman said the plan would likely generate more sales tax revenue because people will have more money to spend. “That will create economic movement, and that in itself will recoup, over a short term, the $1 billion that everyone thinks we’re losing,” he said.
Alexandra Sirota of the liberal N.C. Justice Center said the state can’t afford more tax cuts. “The continued pursuit of income tax cuts will not boost North Carolina’s economy and only serves to further reduce revenue,” she said. “Those benefiting from these tax cuts will continue to be the state’s wealthiest taxpayers and profitable corporations.”
In the House, Republican leaders expressed caution.
“We just don’t want to do things too fast to where we might end up with a shortfall,” said Rep. Jason Saine, the House finance chairman. “I think a moderated approach is the right way to do this, but I’m open to ideas.”
In addition to lower tax rates, the bill includes several elements of the Senate’s economic development plan that have already been introduced – in other bills that have not moved:
▪ Shifting to a corporate income taxing method known as single sales factor apportionment. It would calculate companies’ tax liability based entirely on sales – instead of also factoring in their payroll and property value. It’s effectively an additional corporate tax cut that favors companies with extensive property and payroll taxes in the state. Senate leaders estimate it would save companies $75 million.
▪ Raise the cap on the Job Development Investment Grant incentive program to $15 million a year, while limiting Wake, Mecklenburg and Durham counties to no more than about half of the state’s incentives money.
The bill is the fifth piece of legislation introduced this session dealing with the JDIG program. The House has two bills that would raise the cap without limiting grants in urban counties, while the Senate approved a “stopgap” bill this week that would give the program an immediate infusion of $5 million. The House bills also include tax credits for jet fuel and technology data centers, which Senate leaders say they oppose.
“You cannot do what we’re doing and keep all the special carve-outs and tax breaks,” Tillman said.