Letting some air out of the revenue balloon, the N.C. House unveiled its own paired back version of tax cuts for North Carolinians. Simply put, the N.C. Senate wants a bigger cut, while the House seems intent on making the case that smaller is better. Most on the left don’t want any tax cuts — your money is viewed as their money to spend — making it impossible to appease them on the issue.
Yet, particularly given the record multi-billion-dollar surplus in the state, North Carolinians deserve a substantial tax break.
Senate Leader Phil Berger, R-Rockingham, summed up it well when he said in June that “A huge surplus does not mean we’re spending too little. It means we’re taxing too much.” Not to mention all the ways in which taxpayers were forced to sacrifice across the state given state-mandated lockdowns and the closures of some businesses by executive order.
The Senate, which released its budget first, proposed dropping the state income tax rate from 5.25% to 3.99% by 2025. The House version is less noticeable with a 5.25% reduction to 4.99%. The left digit sales trick might look good on paper, but that’s a 5% reduction compared to a 24% reduction in the flat rate on the Senate side.
Both legislative bodies wisely agreed to raise the standard deduction by identical amounts, which applies greater savings for lower to middle-income earners and moves more of the lower earners off the rolls completely. Furthermore, the Senate included raising the per-child tax credit by $500 for families that make under a certain income threshold that’s not included on the House side. In comparison, the House does propose nixing state income taxes on all military retirement pay. Many military retirees tend to choose states that do not tax their pension income.
On the corporate income tax side, the Senate phases it out altogether by the end of 2027, while the House lowers the rate from 2.5% to 1.99%. Keeping a corporate income tax may satisfy optics, given that killing it all together probably doesn’t tickle the ears of many voters, and certainly not a media hostile to the idea. Yet, consumers and workers are the ones who end up absorbing the cost of corporate income taxes. There’s no supposed pot of money tucked away that Scrooge McDuck is diving into or that’s being hoarded by the stereotypical fat cats most Americans find off-putting.
Overall, the Senate plan on taxes is clearly more aggressive. It offers a better alternative that promotes economic growth, offers greater savings for families, and respects a first principle of protecting private property. And if families are fundamental units of society — and they absolutely are — North Carolina can do a better job of reflecting that in their tax policies.
John Locke Foundation President Donald Bryson offered his support for aggressive tax relief while suggesting that Gov. Roy Cooper be willing to compromise and not hold the budget hostage again over pet political issues.
“We urge legislative leaders to be as bold as possible on tax reform, and we urge Gov. Cooper to follow the example of Gov. Tommy Evers (D-Wisconsin) to find compromise and give North Carolinians tax relief,” said Bryson. Wisconsin’s Democrat governor campaigned on middle-class tax cuts and signed a Republican budget that included tax relief. Evers is expected to make tax cuts a hallmark issue in his 2022 re-election campaign.
The budget on the House and Senate side will be reconciled, and then Cooper will make his political calculations. He’s already offered a backhanded compliment of sorts, saying, “The House budget is better than the bad Senate budget, but that doesn’t make it good.” Yet, on the important issue of tax relief, it’s clear the Senate side came out much more in favor of taxpayers.
Ray Nothstine is Carolina Journal opinion editor.