NC Senate gives tentative approval to new tax plan

RALEIGH, N.C. (AP) -- The North Carolina Senate gave tentative approval Tuesday to its most recent version of a tax overhaul pushed by the chamber's Republicans, who say the package would cut taxes for nearly everyone and keep state government growth in check.

The measure, which would reduce personal income tax rates, phase out the corporate income tax and alter what's subject to the sales tax, may not advance far beyond the Senate following a 32-15 vote and a final expected vote Wednesday. The Republican-led House already has seen much of the legislation in private negotiations between the two chambers in recent weeks, which haven't yielded a compromise.

But Senate leader Phil Berger, R-Rockingham, said he was hopeful the bill would form the basis for a final agreement with the House that would be sent to Gov. Pat McCrory, who has generally favored the House approach on a tax overhaul. Tuesday's package takes the House's position in many areas, he said.

"There's been a good deal of work done to try to find some common ground (but) there is substantial movement in connection with this bill," Berger said, adding that the measure "is going to have a substantial positive impact on our economy and a substantial positive impact on job creation."

The Senate still doesn't agree with the House on corporate income taxes. The Senate wants to phase the current 6.9 percent rate to zero in 2018. The House would instead reduce it to 5.4 percent over five years. The three individual income tax rates currently in place — the highest is 7.75 percent — would be reduced in both plans to one. The House wants a 5.9 percent flat rate, compared to the Senate's 5.75 percent rate.

Democrats contend it would hurt working people while benefiting the wealthiest wage earners and out-of-state corporations. They cite an analysis from the liberal-leaning North Carolina Budget & Tax Center that says the top 15 percent of taxpayers — those making more than $84,000 annually — would receive overall tax cuts while everyone else would pay more.

Fiscal analysts at the General Assembly project the plan would mean roughly $3.3 billion less in revenue for the state through 2018, including $660 million over the next two years and close to $1 billion annually by 2017.

"You're creating a billion-dollar hole that's somebody's going to have to dig out of," Senate Minority Leader Martin Nesbitt, D-Buncombe, said during debate. "You can keep doing it but it's not fooling the people of this state."

Berger and others said there's still enough revenue generated to meet the needs of a growing state and criticized Democrats for again seeking more tax dollars from the public.

The Senate proposal no longer would subject some Social Security benefits to personal income taxes and also moves closer to the House plan by giving tax filers unlimited deductions for charitable contributions and up to $15,000 in deductions for mortgage interest and property taxes.

House Speaker Thom Tillis, R-Mecklenburg, said in a statement the new Senate plan shows legislative leaders are "making progress in our discussions on tax reform."

Republicans presented data from the legislature's research staff showing scenarios of tax filers with incomes ranging from $20,000 to $250,000 under the new plan. All of the filers would receive an overall tax reduction, except for a married couple filing jointly with $20,000 and two children — they would see their taxes rise by $48, the document said.

The new package doesn't eliminate the 2 percent local sales tax on groceries, as an earlier Senate version would have done. Business privilege taxes would be lowered over time, rather than phased out for now.

Nonprofits groups and hospitals are opposed to the Senate's cap on sales taxes that nonprofit groups and hospitals can be refunded annually, which would be lowered in phases to $2.8 million by 2018. The House doesn't want any cap.

The Senate package also would cap the state gasoline tax for the next two years at 37.5 cents per gallon, and eliminate in 2014 sales tax holidays for back-to-school items and energy efficient appliances.