Senate provides more tax reform details, but no bill

Republican state Senate leaders on Tuesday outlined more details of their plan to remake the state's tax code, although they did not roll out a bill or much of the material that accompanies a typical finance measure.

"We have drafts. We don't have a final bill," Senate President Pro Tem Phil Berger said. "One of the reasons we don't have a final bill is a lot of this stuff continues to be moving. The projections that we have initially received from our fiscal folks are being modified as a result of (April tax collections)." 

Without a bill and accompanying fiscal estimates, it is perilous to say the measure will or won't do anything for sure. However, Berger and his Finance Committee co-chairmen, Bob Rucho, R-Mecklenburg, and Bill Rabon, R-Brunswick, outlined the broad strokes during a news conference. Among those highlights were:

Sales Tax: The sales tax rate through most of the state would drop from 6.75 percent to 6.5 percent. However, the number of items to which sales taxes apply would expand to include services. Berger and Rucho said that groceries, which are currently taxed at only 2 percent, would be taxed at the same rate as all other items. Prescription drugs, which are also currently exempted from sales tax, would be taxed at the same rate. Overall, the plan would eliminate sales tax exemptions throughout the tax code.

Legal services, hair cuts and other services that aren't subject to sales tax now would be taxed. 

Income Tax: Currently, the state's top income tax rate is 7.75 percent. That would drop to 4.5 percent. People at the very lowest end of the income scale, those making roughly $12,000 per year, would pay no income tax under the Berger plan. 

Corporate Tax: The state's corporate tax rate would drop from 6.9 percent to 6 percent. 

Estate Tax: Berger's plan would eliminate the estate tax. 

Real Estate Taxes: Early proposals would have raised the fees property owners pay when they buy and sell property. The Berger plan makes no changes to real estate transfer tax rates, although it would change how the money collected is used.

In a promotional video and again Tuesday, Berger said the plan represents at $1 billion tax cut over three years. However, the plan doesn't reduce the amount of income the state takes in. Rather, it slows how quickly revenue collections grow.

Berger's outline was welcomed by fellow Republicans and conservative groups.

"Their proposal is a positive first step in our critical discussion about how to reform North Carolina’s tax structure and move our state toward a more stable economy," House Speaker Thom Tillis said in a news release "I look forward to working with Gov. McCrory and the Senate to reach a consensus plan that moves our state to an economically sustainable tax system and promotes job creation.

Gov. Pat McCrory was more tepid in his response.

“We look forward to reviewing Senate President Pro Tempore Phil Berger’s proposal and getting more details as we all work to improve our outdated tax system,” McCrory said in a statement. “A number of tax bills have already been filed, and we anticipate more to come. We will review the strengths of each proposal and work to reach consensus on a plan that will make our state more competitive for job creation.”

But certain features of the plan raised eyebrows, even among those friendly to the plan. 

Rep. Tom Murry, R-Wake, said he likes the big ideas. But Murry is a pharmacist by trade and acknowledged that his customers would pay more for his prescriptions.

"It will raise the cost of health care," he said. 

Berger's proposal also does away with the a sales tax exemption currently enjoyed by nonprofits. For example, hospitals and many private universities would pay more in taxes every year as a result of that loophole closure.

Critics of the bill blasted it as shifting the tax burden form the rich to the poor.

The liberal N.C. Budget & Tax Center described it as "a plan that not only requires low- and middle-income families to pay more while the highest income families pay less."

According to the to the tax calculator that Republicans rolled out to promote the reform effort, married couples with three children who make $40,000 would pay roughly $600 per year more in taxes every year. The same family earning $100,000 per year would see a cut of roughly $2,400 per year. 

Asked about the possible impact on lower-income families, Berger and Rucho insisted that most taxpayers would pay less overall. Berger said that, in order to see the total impact, the value of government services that low-income families receive should be included.

"The people that will pay are the ones that have substantially received the benefits of tax preferences and loopholes at the expense of all the other working people in the state," Rucho said.