Personal income tax rates would be slashed and the corporate tax rate entirely eliminated by 2028 under a proposal rolled out on Tuesday, May 25, by N.C. Senate Republicans.
The plan would reduce North Carolina’s flat income tax rate from 5.25% to 4.99%. It would also raise the standard deduction from $21,500 to $25,500 for joint filers, taking about 200,000 of the lowest income North Carolinians entirely off the tax rolls.
Additionally, the tax package would raise the child tax deduction by $500, meaning a family with a household income at or below $40,000 would receive a $3,000 deduction for each qualifying child.
“The Republican philosophy when government collects more money than it needs is to give it back through tax relief, and that’s what we’re doing here,” said Sen. Paul Newton, R-Cabarrus. “Tax money is not government money. It belongs to the people of North Carolina who earned it, and it should go back to the people and be used by the people.”
“For the past decade, North Carolina has led the nation in tax reform policy under Republican leadership, and as a result our state’s economy is booming and state revenues are at an all time high,” said Sen. Warren Daniel, R-Burke.
According to a press release by Senate Republicans, the tax cuts would benefit low-income households the most:
- A family of four earning 70% the median household income ($38,221) would receive a 45.6% tax cut.
- A family of four earning the median household income ($54,602) would receive a 21.2% tax cut.
- A family of four earning 400% the median household income ($218,408) would receive a 6.9% tax cut.
The tax-reform package would also phase out the state’s corporate income tax over the next seven years. Now, North Carolina has the lowest corporate income tax rate in the country, at 2.5%. It would also reduce the franchise tax that businesses must pay by 25%.
Another outcome of the Senate proposal is a likely conflict with the House over the tax treatment of Payroll Protection program loans for North Carolina businesses. In April, the House passed a bill that would allow businesses that received PPP loans from the federal government to have any expenses the funds were used for deducted from state tax.
Newton said during the news conference Tuesday that the Senate differed with the House on the tax treatment of PPP loans. Instead, the Senate proposal would allocate $1 billion in grants using federal emergency relief dollars to businesses that received earlier rounds of COVID-19 relief.
Another area of difference: The House has passed a bill that would allow the taxpayers to deduct their unemployment checks on their state taxes, but the Senate plan does not include that provision.
The proposal was discussed in the Senate Finance Committee on Tuesday and is expected to move through the Senate in the coming weeks.