Senate leaders used a Tuesday press conference to announce their long-awaited tax proposal, a proposal that would lower personal and corporate income tax rates, along with the sales tax rate. It also would expand the sales tax base to cover services not currently taxed in the state.

“Our current tax code was written in the 1930s,” said Senate President Pro Tem Phil Berger, R-Rockingham, who along with Sens. Bob Rucho, R-Mecklenburg, and Bill Rabon, R-Brunswick, announced the plan.

“The world has changed dramatically since then,” Berger said. “But our tax code remains stuck in the 1930s.”

The GOP leaders said that the plan also would reduce taxes by $1 billion over three years. They called it the largest tax cut in the state’s history. The three gave an outline of their plan, but they have not prepared a bill for introduction.

“The current system is riddled with special interest exemptions and loopholes that give tax breaks to a favored few while regular folks pay more,” Berger said. “In other words, it’s not fair. It’s not fair to the people of this state and it’s not fair to the state as a whole.”

One of the exemptions that would be eliminated is the mortgage interest deduction, said Berger spokeswoman Shelly Carver.

“This plan eliminates all special interest loopholes, exemptions, and deductions at the state level,” Carver said.

Federal tax deductions would continue because state lawmakers cannot alter federal tax law. Berger brought up mortgage interest in a video prepared in advance of his press conference. “You keep your federal tax deductions for things like home mortgages and child tax credits,” he said in the video.

Senate Minority Leader Martin Nesbitt, D-Buncombe, took note of the lack of a bill by the GOP leaders, and the lack of written documentation.

“I think everybody does agree we need tax reform,” Nesbitt said. “We find that the latest Republican trick is not to produce a plan. We have no bill.”

Nesbitt continued, “What you have here is a press conference, which is very difficult to respond to, because when they produce their bill they can change it. Until somebody puts something on paper so we can see it, we don’t know what the plan is. All we know is what they told us it’s going to be.”

The GOP leaders’ Web page for the plan, nctaxcut.com, provides a video by Berger, a tax calculator, and tidbits about the plan. But it doesn’t give plan details.

Roy Cordato, vice president for research and resident scholar at the John Locke Foundation, said the plan generally moves in the right direction to create a freer and more prosperous economy.

“In terms of changes to the tax code, the two most important features are the proposed reductions in the personal and corporate income tax rates,” Cordato said. “The reality is that the current tax system is a drag on the state’s economy. Every time legislators give a special tax break or incentive to induce investment in the state, which is all too common an occurrence, they are implicitly acknowledging that our personal and corporate income tax rates are too high and are discouraging business and entrepreneurship.”

Nesbitt said the plan appears to give “tremendous tax breaks to the wealthy, and you recoup the money through taxing necessities for working families and the poor.”

He noted that food would be taxed at the full rate, as would prescription medicines. Nonprofit organizations, which Nesbitt said help working families and the poor, no longer would get sales tax rebates.

Rucho said the proposal could bring in revenue from people who don’t pay taxes, or what he called the “underground economy.”

“There is a significant part of our economy that is the underground economy and people that choose not to pay taxes,” Rucho said. “Everybody should pay something.”

Rabon said he believed the changes would make North Carolina “competitive and better than our neighbors in attracting new businesses.”

The GOP leaders said they would accommodate the $1 billion tax cut over three years in the budget by holding budget increases to around 3 percent. They said that anticipated revenue growth would have been around 4.5 percent.

Berger said the proposal, while broadening the sales tax to include services, would reduce the combined state and local sales tax rate from 6.75 percent to 6.5 percent.

The personal income tax would go to a flat rate. The current top rate is 7.75 percent. It would decrease to 5.5 percent in the first year, 5 percent in the second year, and 4.5 percent in the third year, Berger said.

The plan also would create a zero tax bracket. In 2014, the first $10,000 of income would not be subject to state income taxes. The first $12,500 of income would not be taxed in 2015 and 2016. The first $15,000 of income would not be taxed in 2017.

The corporate income tax rate would drop from 6.9 percent to 6 percent over three years.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.