State lawmakers are fast-tracking votes Tuesday on a constitutional amendment to cap the personal income tax rate. The Senate voted 30-18 along party lines in favor of the measure just days after it was introduced, and the House is expected to vote this week as well.
The state constitution currently requires the tax rate to remain below 7% — a number set through an amendment vote in the 2018 election.
The proposed amendment would reduce that cap to 3.5%. Voters in the November election would decide whether to approve the amendment.
Sen. Michael Lee, R-New Hanover and the proposal's sponsor, says the plan would prevent future tax increases unless voters approve a change.
"This is to shore up our commitment to the people," Lee told the Senate Rules Committee on Tuesday morning. "We've told them we're going to reduce the tax rate, we've reduced the tax rate. This is to give them confidence that moving forward, we're not going to go back on our word. And if we need to change something, we can go back to the voters."
Democrats worry the tax cap could harm the legislature's ability to raise needed revenue, and they've questioned if it could impact the state's bond rating and ability to borrow money at favorable interest rates. The N.C. Association of Educators is also opposing the tax cap.
"When state revenue is constrained by design, schools feel it: overcrowded classrooms, aging buildings and educators who are stretched too thin to meet every child's needs," NCAE President Tamika Walker Kelly said during a Senate committee hearing. "You have already decided to cut the corporate income tax to zero. Now you want to write tax cuts that will mostly benefit the wealthy into our state's constitution. That is not fiscal responsibility. That is a permanent transfer of wealth away from our children."
But Republicans argued that the state has other ways to address budget needs, including the sales tax. Sen. Ralph Hise, R-Mitchell, noted that his district borders Tennessee, which has no income tax at all.
"There are plenty of other options for revenue in the state in the case that it's needed, but I fundamentally disagree with the state concept of an income tax," Hise said.
Under a budget agreement announced last week to address scheduled income tax cuts, legislative leaders now want to drop the personal income tax rate from 3.99% to 3.49% from 2027 to 2029, then 3.24% from 2030 to 2032, eventually reaching 2.99% for 2033 and 2034 and 2.49% when revenue triggers are reached after that point. The corporate income tax is in the process of being phased out entirely.
The tax cap is one of at least six amendments Republicans are considering for November's ballot that could help their party's turnout. All are moving through the legislative process this week.
If all are approved by a three-fifths vote in both chambers, it would be the most constitutional amendments to appear on a ballot since November 2018 (another year when signs pointed to a Democratic wave).
The other amendments include:
Property taxes: An amendment to restrict increases in local property tax rates also has support from GOP leaders in both chambers; that bill is on the legislature's agenda this week as well. The amendment itself doesn't explain what the restrictions would be, and lawmakers would decide that after the voter referendum.
Labor unions: Another amendment would change the constitution to include an existing law that dates to 1947 and says people cannot be prevented from employment if they choose against joining a union, labor association, or similar organization.
'Right to farm': This amendment would reiterate that the legislature is the only entity that can regulate (or delegate regulatory authority) agricultural and timber activities.
Council of State vacancies: An amendment moving forward in the House would address how vacancies are filled for Council of State positions like attorney general and insurance commissioner. Current law allows the governor to appoint someone to finish their term if the elected office holder dies or resigns; the amendment would require the governor to choose someone from a list of nominees submitted by the political party holding the office.
State Board of Education elections: Another House proposal would amend the constitution to elect members of the State Board of Education. Most of those board members are currently appointed by the governor. The superintendent of public instruction would chair the board if the amendment is approved by voters.
