Republicans in the state legislature have steadily cut taxes since they took over seven years ago, winning the praise of lean-government advocates across the country. They credit their tax policies with improving the business climate, restoring a budget surplus and improving the economy.
And they’re not finished. But worried that they could lose their veto-proof majority in the legislature, they have proposed a constitutional amendment to put a lower ceiling on income taxes. The amendment is on the Nov. 6 ballot.
That is going too far, according to groups that are already feeling shortchanged, such as public school teachers. City and county leaders, clergy and others are campaigning forcefully against the amendment in a series of rallies. They say limiting income taxes could shift the tax burden to the counties and force a hike in fees as well as property and sales taxes, predominantly benefiting the wealthy.
Meanwhile, the North Carolina chapter of Americans for Prosperity, which has long pushed for a tax cap, is gearing up to promote the amendment. On Wednesday, it will launch what is says is a six-figure online and direct mail ad campaign.
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If approved by a majority of voters, the amendment would lower the current 10 percent cap on personal and corporate income taxes to 7 percent.
Americans for Prosperity pushed for a 5.5 percent cap in Senate legislation in 2017 that led to the ballot proposal. It took more than a year for the bill to advance through the House, and when it finally did, in June, a compromise had raised the cap to 7 percent. It passed the Senate along party lines, and cleared the House with three Democrats defecting.
If voters approve it, nothing much will change immediately. The current tax rate on corporate income is 3 percent and is scheduled to fall to 2.5 percent in January. The current rate on personal income tax is 5.5 percent and is scheduled to drop to 5.25 percent next year.
Chris McCoy, state director for Americans for Prosperity, says the lower cap would protect the strong economy and provide a stable environment for businesses.
“We have a spending problem in this state,” McCoy said Tuesday in a phone interview. “It doesn’t matter which side of the aisle you’re on, we seem to enjoy spending money.”
The organization is disappointed it couldn’t keep the proposed cap at 5.5 percent, he said, adding, “From our perspective 7 is better than 10.”
If future downturns or natural disasters threaten the state’s ability to provide needed services, he said, the state will be able to tap into a higher rate up to the 7 percent limit. And if there is truly an emergency, McCoy said, legislators could amend the constitution again so long as they have the required three-fifths vote of each chamber.
“If everything starts falling apart, they have an out if they need to,” he said. “We feel pretty confident that even if North Carolina were to come across hard times in the future we have the flexibility to adjust as necessary and stay within the bounds of the constitutional amendment.”
McCoy said maintaining the state’s AAA bond rating has been a major concern for many. But state Treasurer Dale Folwell in July announced that the three major national bond rating agencies re-affirmed the state’s triple-A rating, knowing that the amendment could change the cap. Folwell credited an increasing state budget surplus as another reason for the rating.
“I can appreciate that people are fearful,” McCoy said. “It costs more money to borrow when it’s not as high. You have to take that into the calculus. In this case, the bond rating is thumbs-up.”
A recent development — the state being able to charge sales tax on internet sales — will be an additional boost for the state that hasn’t yet been factored in to the state’s economic outlook.
The AFP ad buy is the second major effort by the group, following a similar ad campaign against a proposed constitutional amendment limiting the governor’s power to fill judicial vacancies.
At a recent educator town hall, April Lee, a seventh-grade teacher from Johnston County, said the heating and air-conditioning unit in her classroom is outdated. Students complain that paper handed out in class feels soggy because of the high humidity. It’s too hot in the summer and too cold in the winter.
The raises teachers received in the state budget don’t offset the widespread disrepair that school buildings have fallen into because of neglect, they say. Money is going to operating expenses, not facilities, they say.
“The raises don’t matter if the school buildings are falling apart,” Kristin Beller with the N.C. Association of Educators said in a phone interview Tuesday.
“Our No. 1 concern is we currently don’t have adequate funding for public schools,” she said. “Although this amendment would cap the income tax slightly above what it is now, our concern is a cap written into the constitution would permanently underfund our public schools.”
Her organization has been making the point that schools aren’t the only public service that could be harmed by the tax cap, as there could be less to go around.
“Services that are publicly funded are not ones that should be fighting over funding,” she said. “In fact, it’s the state’s responsibility to fund those services. We are adamantly against capping income tax.”
She notes that there hasn’t been a school building bond election for lower grades in about two decades, even though lawmakers have talked about doing it as recently as this summer. In many places, there hasn’t been enough money left over to make building repairs.
“Not only do they not put on the ballot an opportunity for voters to provide funding for school buildings, they’re also limiting the funding,” Beller said. “Together, it’s really damaging for our public schools.”