GOP proposal cuts taxes for all North Carolinians
(The Center Square) – North Carolina Republicans rolled out a proposal Tuesday that would cut taxes for all North Carolinians.
Low-income taxpayers would pay a smaller share of taxes under the plan, and high earners would pay a bigger share. The proposal phases out corporate income tax and sets aside $1 billion of American Rescue Plan Act funds for grants of up to $18,750 for businesses that received a COVID-19-related loans from the state or federal government in the past.
Sen. Paul Newton, R-Cabarrus, said the proposal is the best stimulus package that has been offered for taxpayers.
“The state has had budget surpluses six of the last seven years. We have billions of dollars in unreserved cash,” Newton said. “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.”
The amended House Bill 334 cuts the flat income tax rate from 5.25% to 4.99%, and increases the zero-tax bracket from $21,500 to $25,500 for couples filing taxes together. It increases the child tax credit by $500, bringing the total deduction to $3,000 for families that earn less than $40,000 per year. Taxpayers can claim the credit if they have a child under the age 17 and met the income requirements.
Under the measure, a family earning less than $40,000 per year would receive a $3,000 deduction per child. The amount decreases based on higher incomes until it reaches zero for a family earning more than $140,000. Lawmakers said under the plan, a family of four earning less than $40,000 will not have to pay income taxes on the first $31,500 they make.
North Carolinians who earn less than $50,000 per year would pay about 8.8% of the state’s tax revenue instead of the 10% they pay now. Those earning more than $200,000 would pay 44.9% instead of 43.4%.
The plan gradually would reduce the corporate income tax over five years, starting in 2024. If the bill becomes law, North Carolina would be the seventh state without a corporate income tax.
North Carolina ranks 10th out of 50 states for its overall business tax climate, according to the Tax Foundation’s 2021 State Business Tax Climate Index. North Carolina received an overall score of 5.51 out of 10 for its business climate from the Tax Foundation. A big contributing factor to North Carolina’s Tax Foundation score was its corporate tax ranking, which ranked fourth in the U.S. North Carolina’s top corporate tax rate is 2.5%.
Republicans have taken credit for the state’s tax climate.
“Eight years ago, the Republican-led General Assembly overhauled the state’s tax system. We’ve moved the effective personal income tax rate from a high of more than 8% to down to today’s 5.25%,” Newton said. “We’ve increased the zero bracket, those paying no income tax in the state of North Carolina, from $6,000 per year to $21,500 per year.”
Rep. Wesley Harris, D-Mecklenburg, said the state should not be eliminating tax cuts after reports of record profits for many corporations. He said North Carolina’s “talent pool and educational investments” have been the selling points for companies and not tax cuts.
“There is zero evidence to suggest that the Republican tax cuts of the previous decade have contributed to our state’s economic growth,” Harris said in a tweet. “In fact, our median household income ranking has actually fallen since 2012.”
Harris also argued the tax proposal could cost the state $7 billion in tax revenue over the next five years, which could impact capital projects and public services for North Carolinians.
“To put that in perspective, $8 billion would satisfy all the capital needs of our public schools in the state,” Harris said.
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