By GARY D. ROBERTSON, Associated Press
RALEIGH, N.C. — House Republicans offered their own North Carolina tax overhaul plan Thursday that would reduce personal and corporate income tax rates and expand the sales tax to cover more services. The proposal’s scope is much narrower than what Senate counterparts offered as GOP legislators try to fulfill a commitment to carry out tax reform this year.
The plan attempts to simplify income taxes and reduces the number of income tax brackets from three to one, according to the proposed legislation obtained by The Associated Press.
House Republican leaders want to reduce slightly the combined state and local sales tax consumers in most counties pay from 6.75 percent to 6.65 percent. They also would subject the sales tax to a handful of new services such as automobile repairs and installations for personal property and warranty and service contracts, the bill says. In contrast, the Senate proposal unveiled last week would make the sales tax base one of the broadest in the country.
Like the Senate, the House labels its proposal an overall tax cut, or $1.2 billion combined over five years, according to data provided by a primary author of the House plan.
“We do think that it is a good plan that helps the working families of our state and it achieves its goal without creating additional obstacles for business to comply,” Rep. David Lewis, R-Harnett, told the AP.
The release comes as Americans for Tax Reform President Grover Norquist prepared Thursday to visit Raleigh for a tax reform rally sponsored by the state chapter of Americans for Prosperity and to hold a news conference with Senate leader Phil Berger. Americans for Prosperity has praised the Senate plan in part for attempting to shift to a consumption-based tax.
Gov. Pat McCrory, a Republican who supports tax reform but hasn’t offered his own plan, gave a lukewarm response to the Senate plan last week and suggested previously he’d like a tempered approach.
Lewis said the sales tax expansion in the House plan attempts only to expand collections to industries that already collect a portion of the tax. For example, automobile repair shops that now collect sales taxes on car parts would collect them on labor, too. Current exemptions that require only a 2 percent sales tax on food and no taxes on prescription drugs would remain, Lewis said. The Senate would eliminate both exemptions.
The Senate proposal, which would reduce the growth of tax revenues by more than $1 billion over three years, has received criticism because the initial plan appears to result in higher tax burdens for low- and middle-income families with several children. Sen. Bob Rucho, R-Mecklenburg, one of the Senate plan’s chief authors, has said they’re working to address the issue. Rucho said last week incremental changes to the sales tax base wouldn’t encourage the job creation that a consumption-based tax system can bring.
Lewis said modeling on the income tax portion of the House plan shows tax cuts for a range of incomes and filing statuses. It didn’t incorporate the sales tax changes, but Lewis said he expected the changes to be less pronounced than the Senate’s proposal.
The House plan lowers the personal income tax rate — currently ranging from 6 to 7.75 percent depending on taxable income — to a flat 5.9 percent rate beginning with 2014 returns. Standard deductions would rise so low-income families would pay no taxes on their first $12,000 of income, for example. The state’s per-child tax credit of $100 would increase to $250 for most filers but drop to $125 for the highest wage earners.
The corporate income tax rate would fall from 6.9 percent to 6.75 percent in 2014 and factors used by multistate corporations to determine their share of North Carolina state taxes would be narrowed to cover sales only within four years. The Senate wants to phase down the personal income tax rate to 4.5 percent over three years and the corporate income tax rate to 6 percent in three years. The combined sales tax also would drop to 6.5 percent.
The House plan also would reduce the business franchise tax rate but wouldn’t expand it to cover limited-liability corporations. Sales tax exemptions for nonprofits would be capped at $5 million.
Lewis said committee debate on the House plan could begin later this month.