State Politics

Income tax cut passes NC Senate along party lines

N.C. Sen. Tommy Tucker (Rep) speaks on the Senate floor on Dec. 21, 2016.
N.C. Sen. Tommy Tucker (Rep) speaks on the Senate floor on Dec. 21, 2016. cseward@newsobserver.com

The N.C. Senate voted 35-14 on Tuesday to cut corporate and personal income-tax rates, with all Democrats opposing the measure.

Senate Bill 325, titled “Billion Dollar Middle Class Tax Cut,” is expected to get a final vote on Wednesday and head to the House, where Republicans have proposed a less sweeping package of tax cuts.

The Senate plan would reduce the personal income-tax rate from 5.499 percent to 5.35 percent while increasing the standard deduction from $17,500 to $20,000 for a married couple filing jointly, with similar increases for other tax-status categories. Because a married couple making less than $20,000 wouldn’t owe any income taxes, the Senate estimates the change would take 94,000 families off the tax rolls.

“Under this plan, 99 percent of taxpayers would pay less or pay no state personal income taxes – and the bulk of the tax cut would benefit middle class and working families earning less than $50,000 per year,” Senate leader Phil Berger said in a news release after the vote. “Our previous tax cuts led to a booming North Carolina economy and helped generate 500,000 new jobs, and we hope Gov. Cooper will enthusiastically support this billion dollar middle class tax cut.”

The Senate voted down an amendment from Sen. Ben Clark, a Raeford Democrat, that would have limited the personal income tax cuts to households earning less than $200,000 annually. Clark argued that the change would better target the cut to the middle class, but the bill’s sponsor, Republican Sen. Tommy Tucker of Union County, urged senators to defeat the amendment.

“It picks winners and losers,” he said. “I’m trying to spread the love all the way across the entire tax base.”

According to the legislature’s nonpartisan fiscal researchers, the tax cut would reduce the state’s expected revenue by $324 million in the first fiscal year, $710 million in the second year and more than $800 million in subsequent years.

Democrats made the case that the tax-cut package would reduce funding available for schools and other needs.

“Berger’s tired economic playbook of neglecting our schools while offering up big tax giveaways to corporations and the wealthy simply does not work – just ask Pat McCrory,” N.C. Democratic Party Chairman Wayne Goodwin said in a news release.

The Senate bill would reduce the corporate rate from 3 percent to 2.75 percent in 2018 and to 2.5 percent in 2019 – something GOP leaders say would attract more companies to the state.

The bill would also adjust deductions used by homeowners and parents.

The state’s current tax credit for families with children would change to a deduction for families earning less than $120,000. The current child credit is available to families earning less than $100,000 and ranges from $100 to $125 per child. Under the new plan, the biggest child tax deduction – $2,500 – would be for families earning less than $40,000, with the amount of the deduction decreasing at higher income brackets.

For homeowners who don’t use the standard deduction, the amount of mortgage interest and property taxes they could deduct would increase from $20,000 to $22,000.

Colin Campbell: 919-829-4698, @RaleighReporter

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