State Politics

Income tax cut, state retiree bonus in NC House budget

Speaker Moore confident House budget will be voted on this week

N.C. House Speaker Tim Moore gives an update on his chamber's budget proposal, which will be completed this week.
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N.C. House Speaker Tim Moore gives an update on his chamber's budget proposal, which will be completed this week.

N.C. House Republican leaders unveiled provisions of their budget Tuesday morning that would reduce tax bills for some personal income taxpayers and boost pension payments to state retirees.

The full House budget document hasn’t yet been released, so there are no details yet on state employee and teacher pay proposals. Budget writer Nelson Dollar said the full document will likely be posted online around 9 p.m. Tuesday evening, but the pay raise provisions won’t be added until Wednesday.

House leaders say they still plan to vote on the budget by the end of the week. Many details of the spending plan were released last week.

The finance provisions released Tuesday morning include a 1.6 percent cost-of-living increase for state retirees that would apply for one year only. The Senate budget did not include any boost for retirees, who have argued they’ve been left out in recent budgets with their pensions increasing by just 2 percent since 2009.

Retirees held a press conference earlier this month to call for a permanent 2 percent cost-of-living adjustment, arguing that the state’s pension plan hasn’t kept pace with inflation and that makes it increasingly difficult for them to pay their bills. The state has about 300,000 retirees in its pension system.

In a pensions committee meeting Tuesday afternoon, Rep. Mickey Michaux, a Durham Democrat, was blocked from proposing an amendment with a 2 percent retiree raise. The committee’s chairman said he wouldn’t allow any budget amendments and that amendments must be filed during Wednesday’s Appropriations Committee meeting.

The House proposal would not lower the personal income tax rate, as a tax cut proposed in the Senate budget would do. But it would cut taxes in several other ways, some of them similar to the Senate proposal.

The House budget would:

▪ increase the standard deduction from $17,500 to $18,500 for a married couple filing jointly, with similar increases for other tax status categories. The standard deduction is the amount of income on which taxpayers who don’t itemize deductions will pay no income tax. The Senate also included an increase in the standard deduction. “The standard deduction, or the 0% bracket, is one of the best methods to provide tax relief for low-income families in NC,” House Rules Chairman David Lewis, a Dunn Republican, said in a tweet Tuesday.

▪ raise the cap on mortgage expense and property tax deductions from $20,000 to $22,000, starting in 2019. The Senate’s budget also increases that cap, but the amount varies based on tax filing status, so the maximum deduction would be largest for married couples filing jointly.

▪ lower the franchise tax for businesses from $1.50 to $1.40 per $1,000, and make purchases of major manufacturing machinery exempt from machinery taxes, which would save companies an estimated $50.8 million per year. It would not lower the corporate income tax, as the Senate’s budget would do.

▪ create a new sales tax refund for small and rural research and development businesses, as well as a sales tax exemption for distribution equipment used by companies that have a “large fulfillment center” for shipping online orders, such as Amazon.

“Lower taxes in itself is a great economic incentive both for companies that have been here for quite some time and those that we’re trying to attract to North Carolina,” said Rep. John Szoka, a Fayetteville Republican.

Szoka said the House and Senate have similar intentions in their tax proposals. “I assure you that the goal of both finance packages is exactly the same,” he said. “The path that each chamber has proposed differs a little bit.”

According to legislative staff estimates, the proposed House tax cuts would reduce revenue by $122 million in the fiscal year beginning in July and $234 million in the following fiscal year. Slightly more than half of that amount would stem from personal income tax cuts, while the rest of the tax reductions would benefit businesses.

That’s much less than the budget impact of the Senate tax cut package, which would reduce revenue by $324 million in the next fiscal year and more than $710 million in following years. More than 80 percent of that amount would come from personal income tax cuts.

The House budget also addresses local government impact fees on development to fund water and sewer services. The House had previously voted to put a moratorium on new impact fees and repeal fees in Orange County after a developer complained. That bill hasn’t yet gotten a vote in the N.C. Senate, and the House budget provision would go a step further, banning impact fees for low-income housing developments.

Parts of the House budget released last week include spending plans for education, transportation and other areas of state government. Some of the cuts in the budget plan that has passed the N.C. Senate aren’t included, including cuts to food stamps, the Governor’s School and other programs.

Haze Moore, a retired educator from Charlotte, calls on budget writers to include a cost of living adjustment for state retirees.

Colin Campbell: 919-829-4698, @RaleighReporter