The Republican-led General Assembly seemed poised to cut the top income-tax rate the state can charge, but the House and Senate can’t agree on what that rate should be.
Senators approved Senate Bill 75 on a 36-13 vote in March 2017, a constitutional amendment lowering the current 10 percent income tax ceiling to 5.5 percent. The bill finally reached the House floor Wednesday, June 27, but with a significant change.
House Finance Committee members rewrote the bill to cap the income tax rate at 7 percent, and the full House voted 73-45 shortly afterward to pass it. That is one vote more than the three-fifths required for passage of a constitutional amendment.
Democrats objected to a necessary final vote on the bill. If approved Thursday on third reading, the bill would return to the Senate for concurrence, and then placed on the Nov. 6 general election ballot for voters to approve.
The Senate may not go along with a cap that high. On Twitter, Colin Campbell of The Insider, quoted Sen. Jerry Tillman, R-Randolph, an architect of the 5.5 percent limit.
“Hell no,” Tillman told Campbell. “The Democrats might take over one day, and they will raise it as high as they can raise it. I don’t think we will approve a 7 percent cap.”
House Minority Leader Darren Jackson, D-Wake, may have reinforced Tillman’s suspicions.
In House debate, Jackson said restricting the ability to generate higher tax revenue could lead to budget deficits. The federal government already was running a $1 trillion yearly deficit before Republicans passed tax cut reforms this year, he said.
“This is going to take one of our options off of the table” to raise more money, Jackson said. “We’re going to have no choice but to cut exemptions for real estate, for property tax, for interest income” in tight budget years.
“There are those who would like to see us go to a pure sales tax, and expand that base,” he said. “Those people are over in the Senate for the most part. And what we’re doing today is we’re locking in the Senate position. We’re saying you won.”
Rep. Pricey Harrison, D-Guilford, opposed the bill “as a bad deal on a number of fronts.”
More aggressive taxes will increase by lowering the personal income tax, Harrison said. Sales and property tax hikes would harm middle-income people more than those in higher income brackets, she said.
The bill restrains the state from being able to raise sufficient revenue to respond to crises such as hurricanes, fires, floods, and recession, Harrison said.
Rep. Nelson Dollar, House senior appropriations chairman, said he and other appropriations chairmen share concerns about an amendment lowering the income tax cap to 5.5 percent.
But they say a cap of 7 percent is acceptable.
The income-tax rate now is 5.49 percent. It’s scheduled to drop to 5.25 percent next year.
Dollar also said he got assurance from State Treasurer Dale Folwell that lowering the income tax rate wouldn’t cut revenues too close, or affect the state’s AAA bond rating.
“The room between what the rate is going to be in 2019, and where this cap is, is more than sufficient to satisfy any of the rating houses, as well as to satisfy any of the needs that we might have in the future” for budget appropriations, Dollar said.
The state has $2 billion in its Rainy Day Fund, and another $1 billion in other reserve funds to help it get through a recession, he said.
“The bill would help safeguard the substantial tax relief provided in recent years to protect taxpayers from harmful tax increases in the future,” said Rep. Jason Saine, R-Lincoln, senior chairman of the House Finance Committee.
“Senate Bill 75 establishes a reasonable limitation of taxes on income — the most harmful form of taxation — and puts the state in a position to adopt protections against tax hikes and overspending in the future,” Saine said.
The only question is whether the two bodies can find a rate cap both can live with before the General Assembly adjourns sine die, perhaps as early as Friday.