Raleigh, N.C. – North Carolina Senate leaders previewed major tax reform legislation Tuesday that would simplify the state’s Depression-era tax code, increase North Carolina’s economic competitiveness and provide the largest tax cut in state history.
The Tax Fairness Act is a three-year plan to put over a billion dollars back into the pockets of North Carolina’s hardworking families and encourage job growth by providing needed tax relief to job-creating businesses. It is the first step in the Senate’s long-term commitment to phasing out North Carolina’s personal and corporate income taxes.
Senate leaders have shared their vision with the Governor, Speaker of the House, and members of the House of Representatives and are committed to working together to incorporate their ideas into the first comprehensive state tax overhaul since the 1930s.
The Senate plan, which would be gradually implemented beginning in 2014, would significantly reduce personal income, corporate income and sales tax rates by closing special-interest loopholes; eliminating unfair and complicated deductions, credits and exemptions; and expanding the sales tax base to treat businesses that sell products and services equally. The plan protects vital state services like education and transportation infrastructure and maintains federal tax deductions like those for home mortgages and child tax credits.
The Tax Fairness Act would:
- Reduce the top state personal income tax rate from 7.75 to 4.5 percent over three years and reduce the tax rate on lower income earners from 6 to 0 percent immediately upon implementation of the plan.
- Apply the new 0 percent state income tax bracket to the following income amounts:
- First $10,000 of income in 2014
- First $12,500 of income in 2015 and 2016
- First $15,000 of income in 2017
- Reduce the corporate income tax from 6.9 percent to 6 percent over three years.
- Reduce the combined local and state sales tax from 6.75 percent to 6.5 percent and expand the sales tax base to include services. Business-to-business transactions within the expanded base will not be taxed.
- Reduce the business franchise tax by 10 percent.
- Eliminate North Carolina’s death tax.
“This plan provides the largest tax cut in state history,” said Senate Finance Committee Co-Chairman Bob Rucho (R-Mecklenburg). “It expands the sales tax base so everyone is treated fairly, everyone pays their fair share and no one gets special breaks or loopholes.”
“A tax on what people spend instead of what they earn allows everyone to know exactly what they’re paying and gives them more control over how much they pay,” said Senate Finance Committee Co-Chairman Bill Rabon (R-Brunswick). “This is a fundamentally fair and progressive plan – the more you make, the more you spend and the more you will pay in taxes.”
According to the Tax Foundation, North Carolina has the Southeast’s highest taxes. Last year, The Wall Street Journal compared the economies of the nine states with the highest income taxes – like California and New York – to the nine states with no income taxes – like Texas and Tennessee. States with no income taxes attracted more new residents and grew their economies faster than states with high income taxes. And the low income tax states experienced significant job growth while high income tax states lost jobs.
“North Carolina is a high income tax state, and we’re suffering the consequences,” said Senate President Pro Tempore Phil Berger (R-Rockingham). “Our unemployment rate is the fifth worst in the country and our high tax rates are hindering economic growth and pushing jobs to our neighbors. We can’t afford to stand still while other states move forward.”
The Tax Fairness Act is sponsored by Rucho, Rabon and Berger. To learn more about the plan, and how it affects your family’s bottom line, visit www.nctaxcut.com.
