The North Carolina Senate passed a Republican-led tax reform package Wednesday evening in a quick, 36-14 vote that drew eight Democrats to cross the aisle and vote in favor of the bill. House Bill 334 would raise the standard deduction from $21,500 to $25,500 for joint filers, which would take about a quarter of a million of the lowest-income North Carolinians entirely off the tax rolls. It also reduces North Carolina’s flat income tax rate for remaining taxpayers from 5.25% to 4.99%.
Additionally, the tax package raises the per-child tax deduction by $500. Bill sponsors say that a family with two children earning $38,000 annually will get a 50% tax cut under this bill, while a family earning $200,000 gets a 7.1 percent cut. For North Carolina households earning the median income of $54,000, they will see a 21% decrease in their state taxes. By raising the minimum deduction, the poorest taxpayers move into the zero-tax bracket.
Bill sponsor Senator Paul Newton, R-Carrabus, told colleagues on the Senate floor the measure disproportionately provides relief to the poorest taxpayers in the state.
“It will also remove some 250k people from the tax rolls altogether,” said Newton. “If your heart is to help the least affluent among us, then this bill will do that.”
The JOBS Grand and Tax Relief measure would also phase out the state’s corporate income tax over the next seven years. Now, North Carolina’s corporate income tax rate is 2.5%. It would phase out to a zero-corporate tax by the year 2027. The reform package would also reduce the franchise tax that businesses must pay by 25%.
Sen. Jay Chaudhuri, D-Wake, stood and spoke in opposition to the tax reform package saying that the state has not spent enough in recent years on schools and infrastructure.
“We’ve elected to pursue more tax cuts rather than rebuild our schools, rebuild our infrastructure and ultimately rebuild our economy,” Chaudhuri said.
Still, eight Democrat senators voted in favor of the tax relief package including Senators Sydney Batch, D-Wake, Ben Clark, D-Cumberland, Sarah Crawford, D-Franklin; Don Davis, D-Pitt; Kirk deViere, D-Cumberland; Michael Garnett, D-Guilford; Paul Lowe, D-Forsyth; and Joyce Waddell, D-Mecklenburg.
The House passed HB334 in April and the Senate made several changes as it moved through the chamber. The Senate version would allocate $1 billion in grants using federal emergency relief dollars to businesses that received earlier rounds of COVID-19 relief, while the House version would allow businesses to deduct from their state taxes any expenses that they used for the Paycheck Protection Plan loan. 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.
Both chambers have made it a part of an overall financial management plan for the state that they say, coupled with low spending, has put the state in a position to come through hurricanes and a pandemic with a surplus and rainy-day fund intact.
“Yes, we can afford this,” said Newton. “We have consistently collected more from taxpayers than we need to operate a sound state government, and this biennium is no different. This bill recognizes that and will allow taxpayers to keep more of their hard-earned money while keeping North Carolina on solid financial ground.”
The bill now goes for third reading in the Senate on Thursday and, if approved, on to the House to continue the process. The House may make changes to the plan or incorporate some version of it in the state budget.