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NC Senate's Tax-Cut Plan Gets Initial Approval By Chamber

North Carolina legislative building
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Individual income taxes would fall again, the corporate rate would be eliminated over time and $1 billion in federal aid would be earmarked for pandemic relief to businesses and nonprofits in legislation given initial approval Wednesday by the state Senate.

Eight Democrats joined all Republicans in the chamber in voting 36-14 for the GOP-penned measure, which in part would result in the state collecting $2 billion less that it would otherwise bring in through mid-2023. But bill authors said the results — including more money in the pockets of tax filers and help for companies that needed coronavirus relief — will help generate economic growth and more revenues in tax coffers.

The measure would reduce the individual income tax rate of 5.25% to 4.99% next year, and increase the amount of income not subject to taxes for all filers by increasing standard deductions and the per-child deduction. The corporate rate — currently the lowest among those states that have such a tax at 2.5% — would reduce the percentage incrementally starting in 2024 and reach zero in 2028. Business franchise taxes also would be retooled.

Sen. Paul Newton, the bill's chief proponent, said the measure would give more tax breaks to lower- and middle-income tax filers as a percentage of their tax liabilities than the highest earners. And more low-income filers would pay no income taxes, Newton said.

"If your heart is to help the least affluent among us, this bill will do that," Newton, a Cabarrus County Republican, asked colleagues. "Can we afford these tax reductions and fund government as we need to fund government in North Carolina? And the unequivocal answer is yes, we can afford this."

The proposed JOBS Grant Program — paid for with up to $1 billion of North Carolina's share of American Rescue Plan funds — would send grants automatically to any entity that received Paycheck Protection Program loans or awards from four other business relief programs. The awards would be capped at $18,750.

Sen. Jay Chaudhuri, a Wake County Democrat who voted no, said the measure would take away money that the state needs for education and infrastructure.

"No one is disputing the value of tax cuts to those who need them the most. But out-of-state corporations and the superwealthy do not. They have done just fine in this pandemic," said Sen. Wiley Nickel, another Wake County Democrat. Republicans used a parliamentary maneuver to block a vote on his amendment that would have halted the corporate tax phase-out and give grants of $500 or $250 to low- and middle-income families with children.

The bill needs one more affirmative Senate vote Thursday before the measure goes to the House. The Senate is expected to put the tax and business grant program in its two-year budget proposal later this month. These fiscal ideas are likely to be debated by Republicans in their final budget negotiations. Republicans have spent the past several years reducing the state's income tax rates.

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