Tillis, Cunningham attack each other’s records on taxes. Here are the facts.
Just days after the terrorist attacks of Sept. 11, 2001, North Carolina Democratic state lawmakers ended a long stalemate by approving a new budget that included more than $1 billion in new tax revenue through an increase in the sales tax and on the state’s highest earners.
Incumbent Republican U.S. Sen. Thom Tillis and his allies have used that vote to cast Democratic U.S. Senate candidate Cal Cunningham as a supporter of higher taxes and said that he will vote to do so again in Washington.
“While Cal Cunningham will hike your taxes – which he even did during a recession – you know exactly where I stand. I’ve cut your taxes before – and I’ll cut your taxes again, and again, because you deserve to keep more of your hard earned money,” Tillis said in a tweet Monday, his latest attack on Cunningham’s tax record.
Twelve years after Cunningham’s vote, Tillis was North Carolina’s speaker of the House. He and Republicans lowered rates on individuals and corporations.
Democrats now attack that package for increasing taxes on, among other items and services, manufactured homes, and Cunningham says Tillis cut money from public education and hurt the poorest people in the state.
Tillis became a U.S. senator, and after President Donald Trump took office, he supported the Trump-backed 2017 law that slashed corporate tax rates permanently and lowered individual rates temporarily.
“We saw what Thom Tillis did in Raleigh. He went to Washington and in 2017 again voted for a tax bill that provided massive giveaways to corporate interests and the wealthiest, really capitulating to those corporate interests and his special interest backers. A consistent record in Raleigh, a consistent record in Washington,” Cunningham said.
The Senate race between Tillis and Cunningham is considered a toss-up and is seen as central to determining which party holds control of the chamber in 2021. Cunningham holds a small lead in polling averages, but has led by 9 points in separate polls released Monday and Tuesday. Libertarian candidate Shannon Bray and Constitution Party nominee Kevin Hayes will also be on the November ballot.
The fight features attacks from the candidates and outside groups that have reduced three complicated budget and tax bills to campaign slogans. We looked into what those laws did and what role Cunningham and Tillis played. Here’s what we found.
A look at the 2001 budget
The budget deal was passed less than two weeks after the terrorist attacks of Sept. 11 and ended what was then the longest session in state history. With the nation slipping into a recession, the state — in part because of declining manufacturing jobs — faced a ballooning projected revenue shortfall, one that eventually reached more than $1 billion, and the possibility of losing its AAA bond rating, The Associated Press reported at the time.
According to reporting by The Charlotte Observer at the time, the two-year budget passed by Democratic state lawmakers and one House Republican in 2001 included a 1/2-cent statewide sales tax increase, for two years, that did not apply to food. It equaled 50 cents more for every $100 in purchases.
The sales tax went from 4% to 4.5 as a result. The increase ended up being extended until 2007 when it became 4.25%.
The overall tax increases amounted to $1 billion over two years.
It raised income taxes 1/2-percentage point, for three years, on single tax filers making more than $120,000 and joint filers making more than $200,000, creating a new tax bracket. North Carolina was the only state to raise personal income tax that year. A taxpayer earning $300,000 would have paid an additional $500.
It added a 6% state sales tax on liquor and out-of-state long distance calls, a 1% premium tax on HMOs and Blue Cross Blue Shield and a 5% sales tax on satellite TV, and removed the sales tax cap on luxury cars over $50,000.
It included a 9% tuition increase for universities and an increase in tuition at community colleges, but provided higher education with nearly $40 million for enrollment increases.
The deal eliminated the marriage penalty on income taxes, increased the child tax credit and created a three-day sales tax holiday for school supplies, clothes and computers in early August. Cunningham said he co-sponsored the bill establishing the holiday.
It increased pay for state employees, including teachers, reduced class sizes at low-performing schools and in kindergarten, created a fund to reform mental health, added a pre-K pilot program, added more than $180 million to the state’s savings account and provided $40 million for clean water.
Republicans criticized the majority party for not making cuts and instead raising taxes, particularly during an recession and an economic downturn.
Cunningham was in his only term in the state Senate in 2001 and 2002. He has not held elected office since. He said last week that he stood by that vote and that budget.
“Thom Tillis is attacking a vote I took 20 years ago in no small part because they’re having a hard time defending Thom Tillis’ own record,” Cunningham said in an interview last week. “That budget invested in the future of North Carolina. That budget invested in education, health care. It invested in clean air, clean water, farmland preservation. That was the right budget for North Carolina.”
“It really reaffirmed our commitment to public education in North Carolina,” Cunningham said. “... We invested in important things in North Carolina in 2001 in that budget.”
A look at the 2013 tax package
Republicans won the governor’s mansion and supermajorities in both legislative chambers in the 2012 election — and, with Tillis as House speaker, they set out to reshape state government in 2013, starting with the tax system. The Tax Simplification and Reduction Act was called the biggest tax reform in 80 years in the state.
In a December 2017 opinion piece for the Wall Street Journal, Tillis touted the 2013 tax package as a blueprint for what the nation should do.
“To get a sense of what a successful tax reform can do, look no further than my state, North Carolina,” Tillis wrote. He said the plan was based “on three simple principles: simplify the tax code, lower rates, and broaden the base.”
According to reports at the time, the state went from three individual tax rates to one at a lower rate, giving highest earners the largest break. The legislation reduced the corporate tax rate and included future revenue triggers to further drop the rate. It repealed the state’s estate tax and, in the state budget, capped the gas tax. It eliminated the personal exemption for income taxes, but more than doubled the standard deduction.
It capped mortgage interest and property tax deductions.
As part of broadening the base, it expanded the sales tax to include “entertainment activities,” including concerts, movies and museums.
It added a sales tax on certain service contracts and electricity and natural gas. It increased taxes on manufactured homes — something Democrats have delighted in pointing out given that Tillis has released commercials discussing his hard-scrabble upbringing, which included living in a trailer park.
It eliminated credits for child care, disability and educational expenses, but extended the child tax credit. It also eliminated tax exemptions for college meal and Energy Star products. The 2013 tax reform package repealed the state’s August sales tax holiday, generally seen as a back-to-school tax break. It also eliminated the Earned Income Tax Credit — “a tax credit for working people who have earned low to moderate income,” as described by the IRS — making North Carolina the only state to get rid of the credit after adopting it.
Republicans have often pointed to North Carolina’s tax reform package as a success story with Tillis saying years later it turned the state’s economy from “one of the worst performing to one of the best.” The right-leaning Tax Foundation produced a 2015 report showing the cuts had lowered taxes across individual brackets.
Democrats have said the promised benefits did not materialize for lower-income residents and growth did not make up for lost revenue. Gov. Roy Cooper, a Democrat, said the decisions “left too many middle class families out of our state’s economic growth.” An analysis from a left-leaning group found the package and subsequent triggered cuts led to $3.5 billion in lost tax revenue in 2017 alone.
Seven years later, the parties are still in disagreement about its effects — a debate that picked up as Congress considered the 2017 national tax overhaul.
“We have to do for the nation what we did for North Carolina because it worked,” Tillis said in late 2017.
A look at the 2017 Trump tax cuts
In late 2017, the Republican-controlled U.S. House and Senate passed the Tax Cuts and Jobs Act, which is the signature policy achievement of President Donald Trump’s first term.
It dramatically cut the corporate tax rate from 35% to 21%.
Though it kept seven individual tax brackets, it lowered the rates — including dropping the top marginal rate from 39.6% to 37%. It increased the standard deduction and expanded the child tax credit, but the individual tax measures are set to expire at the end of 2025, while the corporate cuts are permanent.
The package limited mortgage interest deductions and doubled the estate tax exemption, which also is scheduled to expire at the end of 2025. Republicans cheered the bill’s passage and pointed to a strong economy, including record-low unemployment, before the coronavirus pandemic hit the U.S. in March as evidence of it working.
“The tax reform legislation fulfills a long-standing promise to deliver tax relief that benefits hard-working Americans across our nation. Starting early next year, most North Carolina families will notice bigger paychecks as the federal government withholds less of their hard-earned money because of newly lowered tax rates and a significantly larger standard deduction,” Tillis said when the bill passed.
Democrats have complained that the benefits accrue to the wealthiest and large corporations, some of which paid no federal taxes due to the lowered rate and continued tax breaks, under a bill that has exploded the debt at a time when the nation needs more resources to deal with the pandemic.
“We were sold a bill of goods,” Cunningham said about the impact of the tax cuts.
The entire package was expected to reduce revenues to the federal government by $1.5 trillion over 10 years but, once accounting for growth and other factors, it would only reduce revenues by $1 trillion. In 2019, however, that second figure was revised to $1.6 trillion in large part due to lower taxes paid by businesses.
Most people experienced some reduction in taxes, but studies have found that the richest Americans got the biggest advantage — with some estimates that the top 20% got 72% of the benefits while the bottom 60% of earners saw 15% of the benefits.
Federal spending, even before massive aid packages to deal with the coronavirus, has not abated, sending the national deficit and debt soaring under Trump. The difference between spending and revenue in fiscal year 2019 was $984 billion. The national debt is more than $26 trillion, alarming some even as Congress debates another trillion dollars or more in coroanvirus.
The bill also ended the Affordable Care Act’s individual mandate, which has triggered a legal challenge to the entire law backed by the Trump administration that is now at the Supreme Court.
But Cunningham said the status of the economy and the nation’s recovery from coronavirus would dictate his decisions about whether to repeal parts or all of the 2017 tax bill. In a February Democratic forum, Cunningham said he would replace the “2017 tax cuts with targeted tax cuts for those who need them the most.”
“We need to evaluate where the country is when I get to Washington next year. What are the needs of the people going to be? What is the status of the federal budget?” Cunningham said. “And then I’ll pursue principles of fairness and delivering benefits to workers and families.”
He said he wants to expand the Earned Income Tax Credit and expand and refund the child tax credit, while “corporations and the wealthiest individuals pay a fair share of the cost of the country.”
Tillis, meanwhile, says voters can expect policies similar to what he’s done before.
“I know that the best way to continue getting North Carolinians back to work is through the same common-sense pro-growth policies that I implemented as Speaker and in the Senate that made our state’s economy one of the very best in the nation,” Tillis said in a statement earlier this month.
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This story was originally published July 29, 2020 at 10:10 AM.
