RALEIGH – A bipartisan North Carolina Senate tentatively passed a roughly $1 billion tax cut proposal last week that would provide relief to the overwhelming majority of North Carolinians – with the most dramatic reductions going to middle class and working families and job-creating small businesses.

The Billion Dollar Middle Class Tax Cut Act, sponsored by Sen. Jerry Tillman (R-Randolph), Sen. Tommy Tucker (R-Union) and Sen. Andrew Brock (R-Davie), would continue Republican-led efforts to reform, simplify and cut state taxes – making our tax climate the most competitive in the region and among the most competitive in the nation. Beginning in 2018, the proposal would:

Lower the personal income tax rate from 5.499 to 5.35 percent, keeping North Carolina’s rate one of the lowest in the Southeast.

Increase the amount of income exempt from income tax, by raising the standard deduction for all North Carolina taxpayers as follows:

Married, Filing Jointly from $17,500 to $20,000;

Head of Household from $14,000 to $15,000; and

Single from $8,750 to $10,000.

The proposal provides additional tax relief for families with children by converting and expanding the existing child tax credit into a progressive child tax deduction for families earning less than $120,000 per year. As an example, families with a combined income of $40,000 or less can earn a $2,500 credit per child; those earning $40,000 to $59,999 can take a $2,000 tax deduction per child.

Additionally, the plan calls for an increase in the amount of mortgage interest and property tax deductions and eliminate the marriage penalty for itemizers. And those who itemize would continue to be able to claim unlimited charitable and medical deductions.

It will simplify and reduce the franchise tax on small businesses by cutting what is effectively a statewide property tax on small businesses and creating a flat $200 tax on the first $1 million of a business’s net worth.

The legislation, if passed, will reduce the corporate income tax rate from 3 percent to 2.75 percent in 2018 and to 2.5 percent in 2019, continuing the business tax reforms that have helped create more than half a million new jobs since Republicans took control of the state legislature in 2011.

It also will move to market-based sourcing to end tax penalties on service-based businesses for hiring workers and making infrastructure investments in North Carolina.

While reducing the total tax bill on 99 percent of taxpayers, the Billion Dollar Middle Class Tax Cut Act shifts more of the overall income tax burden in North Carolina from low- and middle-class taxpayers to high-income earners. Those earning more than $199,000 annually will see their tax burden increase from 37.5% to 38.3%.

Meanwhile, a married couple with two children earning the N.C. median household income of roughly $47,000 per year receives an additional tax cut of nearly $200 under the proposal – eliminating close to 14 percent of their total state tax burden.

The bill would move North Carolina closer to the goal of phasing out state income taxes by removing about 94,000 additional families from the tax rolls. And it would make all families of four earning less than the federal poverty level of $24,600 completely exempt from state income taxes for the first time.

“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,” said Senate Leader Phil Berger (R-Rockingham.) “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.”