Senate Passes Sweeping Tax Cut Package that Disproportionately Benefits Lower Incomes
Proposal results in 21% cut for median household
Of state’s total income tax take, earners less than $50k would pay smaller share, earners more than $200k would pay higher share, but all taxpayers would benefit
Raleigh, N.C. — Today the Senate gave initial approval to the Republican tax cut plan that slashes the personal income tax rate by 21% for the median North Carolina household.
Sen. Paul Newton (R-Cabarrus) said, “Our tax plan keeps our promise to the public to provide tax relief in times when the government collects more money than it needs. North Carolina has seen budget surpluses during six of the last seven years. It’s our duty to pass along that prosperity to our citizens. I sincerely appreciate those Democrats who voted with us to reduce the tax burden on North Carolinians.”
Sen. Warren Daniel (R-Burke) said, “North Carolina has been recognized nationally for our decade-long effort to reform and reduce taxes on North Carolina citizens and businesses. That reform has resulted in a booming state economy. We must continue this philosophy of reducing the tax burden on our citizens, so that they can keep and spend more of their hard-earned money.”
House Bill 334 slashes the flat income tax rate from 5.25% to 4.99%, and increases the standard deduction (zero-tax bracket) from $21,500 to $25,500 for joint filers. It also increases the child tax deduction by $500, bringing the total deduction to $3,000 per child for families that earn less than $40,000 per year.
The result is a family of four earning less than $40,000 will pay zero income tax on the first $31,500 of earnings.
Tax Example 1: Family of four earning 70% median household income ($38,221)
- Income tax due under current law: $615
- Income tax due under proposed cut: $335
- Total cut: 45.6%
Tax Example 2: Family of four earning median household income ($54,602)
- Income tax due under current law: $1,528
- Income tax due under proposed cut: $1,203
- Total cut: 21.2%
Tax Example 3: Family of four earning 400% median household income ($218,408)
- Income tax due under current law: $10,338
- Income tax due under proposed cut: $9,626
- Total cut: 6.9%
The proposal disproportionately benefits lower earners. Those earning less than $50,000 per year would comprise an even smaller share of the state’s tax collection (8.8% vs. today’s 10%), while those earning more than $200,000 would comprise an even larger share of the state’s tax collection (44.9% vs. today’s 43.4%).
The measure is a continuation of the legislature’s decade-long commitment to cutting taxes so people can keep more of the money they earn.
The proposal also phases in a corporate income tax reduction over the next seven years. At the end of the seven-year period, North Carolina would join the six other states that have no corporate income tax.
The Tax Foundation announced that if the Senate Republicans’ proposed tax cut becomes law, North Carolina would move to №5 on the group’s state business tax climate rankings. North Carolina ranked 46th when Republicans took control of the General Assembly in 2011.
Over the past 10 years of Republican-led tax reductions, people and businesses have flocked to North Carolina in droves. There are many factors that weigh into a state’s business climate, and tax structure is one of the top considerations.
Some have alleged that tax cuts result in lower education spending, but the past 10 years disproves that theory. Even as Republicans enacted historic tax cuts, they increased state-funded per-pupil education spending by 39%.
The bill passed with a bipartisan vote of 36–14, a veto-proof supermajority. The Senate will vote on the bill a final time on Thursday before the bill goes to the House of Representatives for consideration.
