North Carolina House Tax Plan Passes Second Reading

June 7, 2013

After an whirlwind couple of weeks in which the mortgage interest deduction nearly derailed North Carolina tax reform efforts, House Bill 998 passed the House of Representatives early Friday afternoon. For more information on the legislation, you can view the plan’s summary and fiscal note, or check out the analysis we released this morning.

Though the floor debate was short, it was heated. Multiple amendments were offered (but all ultimately tabled). Those offered included various combinations of the following:

  • Keeping the individual income tax structure graduated to some degree by retaining an additional higher bracket on higher-income earners,
  • Extending or expanding the state’s Earned Income Tax Credit (which is set to expire soon), and
  • Lowering taxes on electricity.

Critics of the bill argued that it disproportionally helps millionaires. This point of contention was passionately debated, but ultimately one thing needs to be kept in mind. When you compare an income tax cut of a given percentage on someone who pays a lot in incomes taxes to someone who pays less in income taxes, simple math tells you that the former will be higher. That’s not an argument against cutting income taxes on everyone.

Opponents also asserted that the proposal would increase sales taxes on low-income earners due to its expansion of the sales tax base to certain services. Like I’ve noted before, sales tax regressivity can be easily fixed and this shouldn’t be a reason to write off an otherwise positive tax reform proposal. Further, the sales tax base expansion is very moderate.

The bill will now be heard for its third reading on Monday. Don’t forget that the Senate has been discussing tax reform plans of their own, which are on the table for discussion in Senate Finance early next week.

You can check out our analysis on the House and Senate plans here, or find more on North Carolina in general here. We’ll continue to follow the discussion as it proceeds.

Follow Liz on Twitter @elizabeth_malm.


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