The North Carolina House of Representatives on Friday passed the "Tax Simplification and Reduction Act" on its second reading by a 72-32.
"Tax reform is not an event, it is a process," said House Speaker Thom Tillis (R-Mecklenburg). "During our first session in the majority, Republicans in the House began that process by providing more than a billion dollars in sales tax relief. Today, we took another major step in that process by passing a comprehensive tax reform package that will provide across-the-board tax relief for North Carolinians."
In a statement, TIllis' office said House Bill 998 will eliminate North Carolina's three-tiered personal income tax bracket system (with rates currently at 7.75 percent, 7 percent and 6 percent) and replaces it with a flat 5.9 percent personal income tax rate.
The plan doubles the size of the standard deduction and increases the child tax credit from $100 to $250 for families making less than $100,000, Tillis' office said. The bill provides a $25,000 combined maximum deduction for mortgage interest and property taxes, while deductions for charitable contributions remain unlimited. Social Security benefits are not taxed under the plan.
The measure also cuts business taxes, reducing the franchise tax by more than 10 percent and shrinking the corporate income tax from 6.9 percent to 5.4 percent. The plan would expand the state sales tax to only those services that are provided by entities that currently collect and remit sales tax revenue. Medicine and food would not be subject to the sales tax.
Democrats argue the changes would result in more overall taxes for mostly tax filers and benefit the rich. They tried unsuccessfully to amend the bill so that the highest wage earners would pay more income taxes and the earned income tax credit that's supposed to expire would stay in place.
Rep. David Lewis (R-Harnett), the bill's sponsor, said, "This comprehensive bill will move our state toward a fairer tax system that will help families prosper and stimulate job creation. It is long overdue, and I am proud of the action taken by the House today."
The bill is expected to receive final approval in the House on Monday, after which it will be sent to the Senate.
The Senate has proposed a different tax reform bill.