Republican House members are pushing for middle class tax breaks by expanding the “zero tax bracket” by as much as $2,000 over the next four years.
The House Finance Committee approved the measure Tuesday after defeating Democratic proposals to reinstate the estate tax and the Earned Income Tax Credit.
“About 70 percent of the population uses the standard deduction, and the remaining 30 percent itemize,” Rep. Susan Martin, R-Wilson, said. “So it’s a significant amount of the population.”
According to a fiscal analysis prepared by the nonpartisan General Assembly Fiscal Research Division, taxpayers would save $25 million in the 2016-17 fiscal year. After being fully implemented, the zero tax bracket would let taxpayers keep an extra $229.5 million in future years.
Martin said married couples filing jointly would save about $115 a year once the phase in is complete.
For the 2016 tax year, the standard deduction, or zero tax bracket, is $15,500 for married couples filing jointly. By 2020, it would increase to $17,500. For those filing as heads of household, the zero tax bracket would move from the current $12,400 to $14,000 by 2020. For single taxpayers and married taxpayers filing separately, the zero tax bracket would increase from the current $7,750 to $8,750 by 2020.
The bill also would repeal the state’s tax on mill machinery, called the mill tax. That change is estimated to save businesses between $51.5 million to $62.6 million a year.
The committee defeated a proposed amendment by Rep. Paul Luebke, D-Durham, that would have reinstated the state’s Earned Income Tax Credit. The proposed credit would have been equal to 25 percent of the credit that a taxpayer qualified for on federal income tax returns.
Luebke’s proposal also would have levied a 7.75 percent marginal tax rate on married taxpayers filing taxpayers with incomes of $1 million or more.
Luebke got support from Rep. Yvonne Holley, D-Wake.
“My intention in restoring the Earned Income Tax Credit is a concern for the poor, working people of this state and not necessarily try to forward a political agenda,” Holley said. “The Earned Income Tax Credit historically has been the No. 1 anti-poverty program that has proved effective and works.”
Rep. John Szoka, R-Cumberland, however, said that middle class taxpayers have gained more from comprehensive tax reform than from the Earned Income Tax Credit.
Szoka said that a family making $50,000 would see a reduction of $1,068 compared to $120 that a family would receive from the Earned Income Tax Credit. “Which is larger, $1,068 or $120?” Szoka asked rhetorically.
Rep. Graig Meyer, D-Orange, also proposed an amendment reinstating the state estate tax on values of $5.4 million or more.
“It would impact fewer than 100 people in North Carolina each year and would generate an extra $63 million in revenues the first year,” Meyer said.
“For most folks in North Carolina this is a family farm or a family owned business and not a large corporation who are passing that own to their family or are having to sell the land and go out of business,” Martin said, opposing the amendment. “It’s something that we eliminated recently and we should not be bringing it back.”
The tax breaks are included in the overall $22.2 billion general fund budget that the House is debating this week.