Paul Newton, R-Cabarrus, left, speaks while Sens. Chuck Edwards, R-Henderson, center, and Ralph Hise, R-Mitchell, at a press conference at the Legislative Building in Raleigh, NC, on Wednesday, March 31, 2021, standing (AP Photo / Gary D. Robertson)
RALEIGH – A bill tabled in the NC Senate aims to lower individual state income tax rates, increase standard deductions, and change some corporate tax calculations.
Senate Bill 337, the Tax Relief and Tax Refunds Act, was filed in March by Primary Sponsors Sens. Paul Newton (R-Cabarrus), Warren Daniel (R-Burke), and Bill Rabon (R-Brunswick).
The bill would cut individual income tax from 5.25% to 4.99% and allow the first $ 25,500 of family income to be tax-free. Legislation would also increase the standard deduction from $ 21,500 to $ 25,500 for married jointly filed applications. $ 16,125 to 19,125 for the head of household; and $ 10,750 to $ 12,750 for single and married couples filed separately.
The state’s current child allowance would be increased by $ 500 for each level of a taxpayer’s adjusted gross income. For example, current state tax law provides a $ 2,500 deduction for couples who are married / filing together and earn up to $ 40,000 or more. That couple’s withdrawal would rise to $ 3,000.
The bill would cap corporate tax to $ 150,000 and make changes to franchise taxes in the state.
“In our state we have a harmful job creation tax that we wanted to cut by a third, and we did that successfully until the governor last vetoed the budget,” Newton said in an interview with the North State Journal. “We’re taking a different approach to this tax reduction calculation this time, and the franchise tax is calculated and paid according to the highest of three calculations.”
Newton stated that the first calculation that will persist is the net worth calculation.
“Multi-state companies usually pay for this [net worth] where they can be in multiple states, ”Newton said. “They have to calculate their net worth, and then go to North Carolina a portion of that due to the customers they sell goods or services to up here in North Carolina. That stays intact. That’s 75% of franchise tax revenue today. “
“The other two legs, however, are particularly burdensome for businesses, as you either have to calculate and pay the real value of tangible property in the state, or the estimated value of your tangible property in the state and pay the franchise tax for that,” Newton said. “The problem with this is that companies like startups or companies that have no assets are taxed – even if they don’t make any money.”
Newton said this “discourages capital investment” and discourages corporations from “putting an iron in the ground” and preventing job creation in North Carolina.
“I think it’s a lot harder to attract and keep startups because we’re taxing you when you’re not even financially afloat,” Newton said. “I think it is a big step in the right direction in reducing the tax burden for North Carolina corporations and workers, and in helping your mother and friends. It helps your small business. “
Prior to the 2019 pandemic, Cooper vetoed a bill that included tax cuts for franchise businesses. In his Senate Bill 578 veto message, Cooper claimed that “corporate tax cuts should take precedence over investment in education” and that “corporate tax cuts of more than $ 1 billion over five years will hurt the future of North Carolina.”
Despite the governor’s claim, the state has posted several budget surpluses since Republicans began passing tax reform measures, many of which exceeded $ 400 million. For example, Cooper’s office forecast a budget deficit of $ 600 million in 2019. In August of that year, the General Assembly’s financial research division announced an estimated surplus of $ 896 million. That same year, North Carolina’s economy was ranked 3rd in the country by CNBC.
“I can’t speak for the governor or what he wants to do,” Newton said when asked if the governor could veto after the law is passed. “But I will no doubt tell you that we must continue to create a structurally sound environment for job creation in North Carolina or we will be left behind by our competitors.”
As part of the Republican-led tax reforms, the state’s corporate income tax rate rose from 6.9% in 2011 to 2.5% in 2020. Likewise, the state’s income tax rate rose from 6% to 7.5% in 2011 to 5.25 % in 2020, coupled with an increase in standard deductions.
Newton said there is no “finish line” and the state must continue to seek ways to convince job creators that “this is the state they want their 50+ year capital investment in.”
“For me the question is: can we afford these tax cuts? And the answer to that is a resounding yes, ”Newton said. “After the tax cuts and legal transfers to the SKIFF and Rainy-Day Fund, we still have $ 4 billion available, which is above this year’s base budget.”
Newton said the fiscal impact would be “$ 150 million, growing slightly over four years.” The changes would take effect in fiscal year 2022-23.