Senate Tax Compromise Cuts More Than Earlier Proposals | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an associate editor to the Carolina Journal, John Hood Publisher.

Proposal offered Tuesday eliminates income tax exemptions, limits sales tax

    RALEIGH     Senate leader Phil Berger unveiled the latest tax reform plan Tuesday. It's a plan that would reduce the personal income tax, eventually eliminate the corporate income tax, and put a hold on efforts to broaden the sales tax.

    "It cuts taxes by more than a billion dollars in the first three years alone," said Berger, the Senate's president pro tem.

    Berger, R-Rockingham, emphasized that the bill would not reinstate the sales tax on food, tax prescription drugs, or impose taxes on services that currently are not taxed.

    "It does simplify our 1930s-era tax code," Berger said. "It provides substantial relief to working families. "

    Berger presented the plan to the Senate Finance Committee Tuesday afternoon. Sen. Bill Rabon, R-Brunswick, said the committee would take a vote on the bill Wednesday afternoon.

    The bill drew immediate skepticism from Sen. Dan Clodfelter, D-Mecklenburg.

    "I think it's a charade," Clodfelter said. "It's a lot of promises of things to come in future years with no way to deliver on them."

    Clodfelter said his concerns were directed toward questions regarding whether large tax cuts would let the state pay its bills in years to come.

    "There's lots and lots of promises in here, but no way to pay for any of them," Clodfelter said. "Like President Clinton said, it's all a matter of arithmetic. Arithmetic is really hard to get around."

    Clodfelter went on. "There are good things to do if you could do them," he said. "I think it's worthwhile to try to reduce a lot of these rates. But you've got to figure out how you're going to afford to do that."

    Berger said he believed the package would still allow state government to be able to collect enough money to balance the budget.

    "What we do is we slow the rate of growth," Berger said. "That in essence results in less money being taken from taxpayers for the state."

    The plan would lower the personal income tax rate to 5.4 percent Jan. 1, 2014, and to 5.25 percent Jan. 1, 2015. Currently, the rate is between 6 percent and 7.75 percent, depending on income.

    It would eliminate the marriage penalty, as well as eliminate all credits except the child credit.

    It also would eliminate all exemptions and deductions, except those required by court decisions or federal law.

    The proposal calls for establishing a zero tax bracket, meaning the first $15,000 of income for married individuals filing a joint return would be taxed at zero percent. The zero tax bracket would cover the first $12,000 of income for heads of household filers, and up to $7,500 for single filers or married individuals filing separately.

    The bill would phase out the corporate income tax by Jan. 1, 2017. It would impose a flat business privilege tax on limited liability corporations. For 2015, the tax would be $400, rising to $600 in 2016, and $750 in 2017. C corporations would be assessed a flat business privilege tax of $5,000.

    Electricity and piped natural gas would be taxed differently, as gross receipts and excise taxes would be repealed, and swapped out with sales taxes.

    The local sales tax on food would be phased out by Nov. 1, 2016. However, counties could levy sales taxes on food beginning Jan. 1, 2017.

    A number of sales tax exemptions would be repealed, including those on newspapers, vending machines, and meals sold at educational dining halls. Exemptions for admissions charges to elementary and secondary schools entertainment programs, agricultural fairs, nonprofit fund-raisers, and youth athletic contests would remain in place.

    The back-to-school and Energy star sales tax holidays would be repealed, effective July 1, 2014.