NC Senate Republicans : Cut taxes by $1 billion - WSLS 10 NBC in Roanoke/Lynchburg Va

NC Senate Republicans : Cut taxes by $1 billion

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Phil Berger, NC Senate leader Phil Berger, NC Senate leader
NC Tax Revenue 2010-11, in billions (Source: NC Department of Revenue) NC Tax Revenue 2010-11, in billions (Source: NC Department of Revenue)
RALEIGH, N.C. -

As Senate Republicans unveiled more details about their long-awaited tax overhaul proposal on Tuesday, they said lowering income tax rates and expanding the scope of the sales tax is fair to all, will boost the state's economy and cut taxes for most citizens. But plan critics say lower-income people will pay more overall.

[LINK] NC tax revenue sources

Chamber leader Phil Berger and other GOP senators held a news conference Tuesday to discuss the framework of the tax plan they say will cut taxes by more than $1 billion.

"Our tax code remains stuck in the 1930s," Berger said. "Failure to reform our tax code has cost North Carolina. We're standing still while other states move forward.

"The current system is riddled with special interest exemptions and loopholes that give tax breaks to a favored few, while regular folks pay more. In other words, this is not fair. It's not fair to the people of the state. And it's not fair to the state as a whole."

Income tax rates would fall over the next three years and the combined local and state sales tax most consumers pay would drop to 6.5 percent. Berger called it "the largest tax cut in North Carolina history."

"It's a three-year plan to put over $1 billion back in the pockets of N.C.'s hard-working families, and encourage job growth by providing tax relief to those job-creating businesses in the state," Berger said. "The plan would substantially decrease income, corporate income and sales tax rates."

He added, "The plan would institute a zero-tax bracket -- something we don't currently have. Residents earning below $10,000 in their first year, below $12,000 in the second year, below $15,000 in the third year would be in the zero-tax bracket."

But plan critics say lower-income people will pay more overall.

North Carolina's sales tax would drop from 6.75 percent to 6.5 percent; local sales tax would drop from 2 percent to 1.5 percent; and state sales tax would increase from 4.75 percent to 5 percent.

The overhaul would make North Carolina's sales tax base one of the broadest in the country by eliminating exemptions and expanding to cover more services.

North Carolina needs a more consumption-based tax system to replace a system that has led to stubbornly high unemployment rates, falling median income and increasing poverty rates, said Sen. Bob Rucho, R-Mecklenburg, one of the plan's authors. The more robust state economies ascribe to such a tax code, he said.

"The existing system has failed us, and what that means is we need to find an alternative that will create the jobs that put North Carolinians back to work," Rucho added. "We believe this plan will accomplish that."

Berger estimated that under the plan "the overall tax situation for the vast majority of people will be that they will pay less." But Democrats and others said the Senate's plan will shift the tax burden to low- and middle-income residents and older adults as taxes are shifted away from income and to goods and services.

"The Senate leadership has pursued a shift in tax burden from the rich to the poor, not tax reform," said  the North Carolina Budget & Tax Center, which lobbies on behalf of low-income people.

Two of the largest exemptions - the state's portion of the tax on groceries and the combined exemption on prescription drugs and insulin - would be eliminated, Berger said. That means the products would be taxed at the full 6.5 percent rate, generating hundreds of millions of dollars annually.

"They're cutting taxes for the wealthiest of the wealthy and paying for it by taxing vital services and goods for the middle class," Senate Minority Leader Martin Nesbitt, D-Buncombe, said in a news release. "This plan takes those struggling the most and makes life a little harder."

The bill has not been introduced and the Senate leaders said there are still details to be worked out.

North Carolina currently subjects about 30 services to the sales tax. The proposal would add another 100 or so services to the list, including all kinds of repairs, personal services like haircuts and massages and professional services like those attorneys provide. Other services that would be subjected to the sales tax include pet grooming, commercial linen supplies and window cleaning, according to the documents.

"The current concept is if a service is being taxed in another state, then it would be part of the expanded base," Berger said. Business-to-business transactions would be exempt from sales taxes expanded by the proposal.

Expanding the sales tax is sure to bring out interest groups who don't want their products or services taxed more. Broadening the sales tax, however, to cover nearly all transactions may mitigate those complaints because everyone - including consumers - would have to pay more.

"Why is it fair to tax the service on a car repair but you don't tax an attorney fee?" Berger asked. "Why is it fair to tax that service for a car and you don't tax the accounting fee?"

Any plan also must win support from House Republicans and GOP Gov. Pat McCrory.

McCrory said he looked forward to examining the details of the Senate's proposal.

"A number of tax bills have already been filed and we anticipate more to come," McCrory said. "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."

Material from WNCN's Charlotte Huffman was used in this report.

Other reaction to the N.C. Senate proposal

"I applaud the work of Sen. Berger, Sen. Rucho, and other leaders in the North Carolina Senate in developing the plan that was previewed today.  Their proposal is a positive first step in our critical discussion about how to reform North Carolina's tax structure and move our state toward a more stable economy.  I look forward to working with Gov. McCrory and the Senate to reach a consensus plan that moves our state to an economically sustainable tax system and promotes job creation." 

- House Speaker Thom Tillis

----

"The Senate leadership has released a proposal that will harm working families and the broader economy.

"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. 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. That is equivalent to the entire community college system OR the combined budgets of the DHHS Divisions of Aging, Child Development, and Child Health and the Judicial Branch and NC Biotechnology Center."

- North Carolina Justice Center

---

"The Senate tax reform plan is a dramatic improvement over North Carolina's current uncompetitive tax code. The plan significantly reduces and flattens personal income taxes, removing some of the most harmful disincentives to work, investment, and job creation. The plan makes great strides in taxing all North Carolinians fairly by applying taxes broadly, and also lowers the sales tax rate meaning people will pay less tax on purchases that are currently taxed."

Fran DeLuca, President of the Civitas Institute

---

One red flag is the surprising lack of details about how tax cuts will be offset by expanding the sales tax base enough to keep our vital services and infrastructure in place.

Another red flag is that this plan does not purport nor attempt to raise the same level of revenue as the state is currently taking in. The plan as outlined by Senator Berger 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. For example, one billion dollars is equal to the entire community college system budget in North Carolina.

- Together NC

 

Charlotte Huffman

An award-winning journalist with an investigative edge, Charlotte has driven legislative change with reports on workplace safety concerns and contaminated groundwater. Contact our Investigative Team anytime HERE. More>>

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