RALEIGH — The state Senate passed a tax plan Thursday that would reduce taxes for many North Carolinians and phase out the corporate income tax. It is likely to become part of the Senate’s overall state budget proposal.
The vote on the Republican-led bill included enough Democrats to give it a veto-proof majority. A preliminary vote Wednesday was 36-14, with the final vote Thursday of 34-13.
The tax-cut effort, led by Senate Finance Chair Paul Newton, a Cabarrus County Republican, includes reducing the income-tax rate from 5.25% to 4.99%.
It would also increase the standard deduction — which is the amount of income on which people pay no income taxes unless they itemize — by about 18.5%. That means for a married couple filing jointly, their deduction would increase from $21,500 to $25,500. For married couples filing separately, it would increase from $10,750 to $12,750. A single person filing income taxes would have her or his deduction increased from $10,750 to $12,750.
The bill, House Bill 334, JOBS Grants and Tax Relief, also raises the child tax deduction by $500. North Carolina’s current child tax deduction is up to $2,500 a year for families who also claim a federal child tax credit. It would also phase out the corporate tax until it is zero.
“Can we afford it?” Newton said. “The unequivocal answer is yes,” he said on the floor Wednesday, saying the state has collected more taxes than it needs to run the government.
Senate Democratic Whip Jay Chaudhuri, who voted against it, said the bill was “squandering economic growth potential” for the state.
Some Democrats on board
Sen. Kirk deViere, a Fayetteville Democrat, was one of the minority-party senators who voted for it.
“I think there was some good parts of the tax bill, that includes focused on working families and our small businesses. I think there’s still some work to do on the bill itself,” he told The News & Observer. DeViere said he doesn’t want to see the corporate tax rate at zero.
“I think we ought to be a little more conservative on the tax revenue and potential loss of that tax revenue (in 2024-25),” deViere said.
He’d like to see targeted cuts similar to the 2020 Extra Credit grants for parents, mixed with other tax relief.
Newton said on the floor Thursday that Republicans commit to Democrats to “refine language to make this bill better.”
Democratic Gov. Roy Cooper, who the General Assembly will send the final budget to for a signature or veto, indicated that he does not support the bill in its current form.
“The last thing we need is more sweeping tax breaks for corporations and the wealthiest among us instead of investments in our hard-working families and communities,” his spokesperson, Ford Porter said in an emailed statement when the plan was announced.
Senate leader Phil Berger, an Eden Republican, told reporters this week that both chambers have agreed to have “substantial tax reductions” in their proposed budgets.
“I am hopeful that we will convince our colleagues in the House — that bill is an excellent bill,” he said.
“The bulk of the tax cuts in the bill are for individual families, and if you’re scoring as to how much revenue is involved, the amount of tax reductions for corporations is miniscule compared to reductions overall,” Berger said.
He told reporters he expects the Senate to pass its budget by June 24 or 25. He said after the House’s budget moves and then they agree on a final budget, they could send that to Cooper’s desk the third week of July.
Berger, too, said the Republican leadership will work with Senate Democrats on the budget.
“We will see whether or not we’re able to land on that elusive common ground,” he said.
Berger, House Speaker Tim Moore and Democratic legislative leadership met with Cooper this week to go over the budget process timeline, he said.
The bill passed Thursday in the Senate also includes business recovery grants that would spend about $1 billion of federal American Rescue Plan funds. Grants of up to $18,750 would be automatic for businesses that were already recipients of the COVID-19 Job Retention Program, Economic Injury Disaster Loan Advance, Paycheck Protection Program, Restaurant Revitalization Fund or Shuttered Venue Operators Grant Program.