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Tax reform plan draws mixed reaction

Published 10:20am Thursday, May 9, 2013

RALEIGH – North Carolina Senate leaders previewed major tax reform legislation Tuesday that would simplify the state’s Depression-era tax code, increase North Carolina’s economic competitiveness and provide the largest tax cut in state history.

The Tax Fairness Act is a three-year plan to put over a billion dollars back into the pockets of North Carolina’s hardworking families and encourage job growth by providing needed tax relief to job-creating businesses. It is the first step in the Senate’s long-term commitment to phasing out North Carolina’s personal and corporate income taxes.

“North Carolina is a high income tax state, and we’re suffering the consequences,” said Senate President Pro Tempore Phil Berger (R-Rockingham). “Our unemployment rate is the fifth worst in the country and our high tax rates are hindering economic growth and pushing jobs to our neighbors. We can’t afford to stand still while other states move forward.”

Senate leaders have shared their vision with the Governor, Speaker of the House, and members of the House of Representatives and are committed to working together to incorporate their ideas into the first comprehensive state tax overhaul since the 1930s.

“We look forward to reviewing Senate President Pro Tempore Phil Berger’s proposal and getting more details as we all work to improve our outdated tax system,” said Governor Pat McCrory. “A number of tax bills have already been filed and we anticipate more to come. We will review the strengths of each proposal and work to reach consensus on a plan that will make our state more competitive for job creation.”

The Senate plan, which would be gradually implemented beginning in 2014, would significantly reduce personal income, corporate income and sales tax rates by closing special-interest loopholes; eliminating unfair and complicated deductions, credits and exemptions; and expanding the sales tax base to treat businesses that sell products and services equally. The plan protects vital state services like education and transportation infrastructure and maintains federal tax deductions like those for home mortgages and child tax credits.

The Tax Fairness Act proposes to:

Reduce the top state personal income tax rate from 7.75 to 4.5 percent over three years and reduce the tax rate on lower income earners from 6 to 0 percent immediately upon implementation of the plan.

Apply the new 0 percent state income tax bracket to the these income amounts….the first $10,000 of income in 2014; the first $12,500 of income in 2015 and 2016; and the first $15,000 of income in 2017.

Reduce the corporate income tax from 6.9 percent to 6 percent over three years.

Reduce the combined local and state sales tax from 6.75 percent to 6.5 percent and expand the sales tax base to include services. Business-to-business transactions within the expanded base will not be taxed.

Reduce the business franchise tax by 10 percent.

Eliminate North Carolina’s death tax.

“This plan provides the largest tax cut in state history,” said Senate Finance Committee Co-Chairman Bob Rucho (R-Mecklenburg). “It expands the sales tax base so everyone is treated fairly, everyone pays their fair share and no one gets special breaks or loopholes.”

According to the Tax Foundation, North Carolina has the Southeast’s highest taxes.

While state Republicans appear to favor this tax code overhaul, others expressed concerns.

“By cutting income taxes and expanding the sales tax to more goods and services, the Senate leadership has pursued a shift in tax burden from the rich to the poor, not tax reform,” said Alexandra Forter Sirota, Director of the Budget and TaxCenter. “The result is a plan that not only requires low-and middle-income families to pay more while the highest income families pay less, but also reduces the state’s ability to invest in a foundation for economic growth by cutting state revenues by $1 billion each year.”

Together NC said the Senate’s tax reform plan is, “long on promises and short on details.”

The organization listed a series of what they called “red flags” regarding this proposal, which included how tax cuts will be offset by expanding the sales tax base enough to keep our vital services and infrastructure in place; Berger’s plan will result in at least one billion dollars in revenue loss, revenue that could be dedicated to important and necessary services and infrastructure in the state; and that the proposal is actually the largest tax shift in North Carolina history as they say the majority of middle and lower income North Carolinians will pay proportionally more of their incomes towards taxes than the wealthiest in the state due to rate cuts in both the personal income and corporate income taxes being offset by an expansion of the sales tax base. Another example of this shift is the elimination of the EITC in the plan, which will equate to lost income for lower wage workers.

“While North Carolina’s tax system clearly needs to be modernized, the Senate plan takes the state in the wrong direction. Fairness, equity and stability should guide our tax reform decisions, not a race to the bottom of tax rates in the region based on the faulty assumption that tax cuts create jobs,” concluded the Together NC press statement.

To learn more about the plan, and how it affects your family’s bottom line, visit www.nctaxcut.com.

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