The North Carolina General Assembly approved a two-year budget that includes a plan to lower income and corporate taxes and create new service taxes. Top Republicans say these measures will help create an environment in which the state’s economy will grow, while some Democrats say it unfairly shifts economic burden from large corporations to middle- and low-income families.
The budget includes more than 20 pages outlining changes to North Carolina's tax system. Part of the plan:
- Lowers personal income taxes to 5.49 percent from 5.75 percent by 2017.
- Increases the income tax deduction by $500 to $15,500
- Restores tax deductions for medical expenses that had been eliminated in 2013, and expands the deduction to all people.
- Expands sales taxes to installation, maintenance and repair services such as car repairs.
- Allows local governments to charge a vehicle tax of up to $30, up from $5 per vehicle.
Sen. Bob Rucho, a Republican from Mecklenburg County and one of the lead authors of the bill, said lowering taxes on businesses will make it easier for them to invest in the state, and therefore create jobs, and that the state should rely less on personal and corporate tax revenue because it is difficult to predict. Rucho said sales taxes are more reliable, and therefore make it easier to plan for future state budgets.
“You can make long-term plans on your education system, on your transportation system, on what you need for your court system,” Rucho said. “And it doesn't have huge deficits that you have to come back and say, ‘Oh, I'm sorry, we're going to have to cut you.’”
Sen. Josh Stein, a Democrat from Wake County, disagrees. He said the plan would favor high-wage earners because everyone pays the same income tax—instead of lower rates for people who make less money, as was the case in previous North Carolina tax models—and new consumer service taxes take up a bigger proportion of the incomes of middle and low wage earners.
More than 20 states charge service taxes, including Florida, Missouri, Tennessee and West Virginia, according to the non-partisan Institute on Taxation and Economic Policy.
“When you look at the overall picture of what’s going on, they’re relieving the burden on the well connected, and they’re putting it on the backs of working folks,” Stein said.
The North Carolina plan would impact people like Jerome Bias, who drives a 1999 Volkswagen Jetta that he likes to call “Rattletrap.” He maintains it diligently because, he said, because he can’t afford to let it break down.
Bias, 47, lives on a dairy farm in Mebane, and drives more than 100 miles round trip to his job as a historian at a museum in Winston-Salem. He earns $10.45 per hour, he said, and sometimes supplements his income by tending to dairy on the farm where he lives.
Bias recently paid $1,157, including $405 for labor, at Automotive Solutions in Orange County to have the timing belt, water pump and oil changed on his car. Under his county’s local sales tax rate of 7.75 percent, Bias would have paid a $30.38 tax on the belt change, which he said is roughly the cost of gas for one week.
He pays for regular maintenance on his car because, at more than 250,000 miles, it’s in good condition, and is relatively efficient on gas mileage, he said. More importantly, he can’t afford to not have a working car.
“If I can’t make it to work,” Bias said, “I don’t make the rent.”