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NC Senate Republicans To Pitch More State Tax Reductions

taxes unsplash file.jpg
Kelly Sikkema
Senate GOP leaders plan to push legislation that would decrease the state's income tax rate of 5.25% to 4.99% next year, according to Sen. Paul Newton, a Cabarrus County Republican and finance committee co-chairman

RALEIGH — North Carolina Senate Republicans will pitch more individual income tax reductions this spring, a key lawmaker said Monday while asserting that the state's fiscal health emerging from the pandemic and past tax cuts make such proposals possible.

Senate GOP leaders plan to push legislation that would decrease the state's income tax rate of 5.25% to 4.99% next year, according to Sen. Paul Newton, a Cabarrus County Republican and finance committee co-chairman.

They also want to again increase the amount of income not subject to taxes, so standard deductions will match those offered for federal tax filers when 2022 taxes are filled out in early 2023, Newton told The Associated Press. For example, the standard deduction for a married couple filing jointly would increase from $21,500 to $25,500 in 2022 under the proposal.

Republicans have made it a top priority to scale back income taxes since taking charge of the General Assembly in 2011. Just eight years ago, the state had a three-tiered tax system with rates that reached 7.75% for the highest earners. They credit these and corporate tax changes for attracting more big industries from out of state and retaining businesses — which pay their own taxes — and for surpluses.

“We have yet another year of excess revenues and we are going to be proposing to the rest of the legislature and the governor that we reduce taxes as a result,” Newton told the AP. “We have incredible headroom because of the economic growth and prosperity in North Carolina."

Senate Republicans endorsed a tax package proposed by Newton in a caucus meeting late Monday, according to Lauren Horsch, a spokeswoman for Senate leader Phil Berger. The soon-to-be-filed bill is likely to advance through the chamber, then get incorporated into the Senate GOP’s state budget proposal that could surface in late April.

While economic uncertainty associated with the coronavirus remains, cash levels within North Carolina’s tax coffers have soared in recent months. Even if his proposed tax changes are carried out, Newton said, lawmakers would have $29 billion to operate state government for the next fiscal year starting July 1. That compares to the $24.9 billion getting spent this year, Berger’s office said.

Still, the price tag for the income tax changes — an estimated $1.86 billion that the state would otherwise collect through mid-2023 — should raise scrutiny from Democrats including Gov. Roy Cooper and his legislative allies. Cooper has criticized Republicans for taking away government revenues, especially those paid by top earners and corporations, when he says needs for education, infrastructure and health care are great. And Cooper has downplayed the importance of tax rates in attracting companies.

A higher standard deduction increases the number of low-income filers in a “zero income bracket,” thus paying no income taxes. But taxpayers of all income levels benefit.

In 2019, Cooper signed a bill that raised standard deductions to their current levels. But he vetoed a separate bill that year that reduced corporate franchise taxes. Horsch said franchise tax reduction proposals would be included with the income tax changes contained in Newton's measure, which will be filed as soon as Tuesday.

Democrats can uphold Cooper’s vetoes if they remain united. House Republicans also would weigh in on a final tax package. Cooper is expected this week to offer his own two-year budget proposal, which likely would include any tax adjustments.

Newton said he hopes Cooper understands that businesses are coming to the state due to structural tax changes that fiscal conservatives have implemented "and realizes that that is not by chance.”

Newton said the proposal wouldn’t run afoul of the federal pandemic rescue package law, which bars states from using their share of funds to offset tax cuts. The tax break has nothing to do with North Carolina's share of $5 billion, he said, and was planned well before Congress approved the package.

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