News: Quick Takes

Amendment Would Cap State Income Tax Rate

If enacted and ratified, S.B. 817 would amend Constitution, limiting state income tax rate to no higher than 5.5 percent

One of the architects of North Carolina’s recent tax reforms wants to lower the maximum rate of personal income tax allowed by the state constitution.

Sen. Bob Rucho, R-Mecklenburg, co-chairman of the Senate Finance Committee, has introduced Senate Bill 817, a proposed amendment to the N.C. Constitution that would lower the maximum state income tax rate to 5.5 percent from its current 10 percent.

North Carolina’s personal income tax rate has dropped significantly since 2013, when the GOP-controlled General Assembly passed and Republican Gov. Pat McCrory signed into law a tax reform package.

Before the 2013 reforms took effect, North Carolina had a three-tiered progressive personal income tax system, with tax rates of 6 percent, 7 percent, and 7.5 percent, depending on the taxpayer’s income bracket.

The reform package created a flat tax of 5.8 percent for 2014 and 5.75 percent for 2015 and 2016. In 2017, the tax rate drops to 5.499 percent.

Rucho, who is not running for re-election this year, said he is trying to push the state’s tax policy away from the income tax to a consumption-based tax on goods and services. He counters skeptics who say such a move would unfairly impact less-affluent taxpayers by putting in a plug for his proposal to raise the “zero tax bracket” for married couples filing jointly by $2,000 this year to $17,500.

“We’re moving closer to a 0 percent income tax, similar to Florida, Texas, and Tennessee,” Rucho said. “It just takes time.”

Rucho said if the change gets approved, the General Assembly would have options if an emergency or catastrophic event called for increased revenue streams. Lawmakers either could broaden the sales tax base, or increase the sales tax rate, he said.

“It would be better doing it with a sales tax increase than with a corporate or personal income tax increase,” Rucho said. “You almost have to wait a year to get the corporate or personal income tax [increase] in.” A sales tax increase or broadened sales tax base could be put into place almost immediately, Rucho said.

If Rucho’s constitutional amendment is passed by the General Assembly, it would be submitted to the state’s voters for ratification during the Nov. 8 general election. If approved, it would take effect Jan. 1, 2017.