Senate Republicans Propose Big Tax Cut; Plan Disproportionately Benefits Lower Income Brackets
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
Reminder: Republicans have upped per pupil education spending by 39% while simultaneously cutting taxes
Raleigh, N.C. — Senate Republicans today unveiled a sweeping tax cut that would slash rates by 21% for the median North Carolina household.
Sen. Paul Newton (R-Cabarrus) said, “The state has had budget surpluses six of the last seven years. We have billions of dollars in unreserved cash. The Republican philosophy when government collects more money than it needs is to give it back through tax relief, and that’s what we’re doing here.”
Sen. Warren Daniel (R-Burke) said, “For the past decade, North Carolina has led the nation in tax reform policy under Republican leadership, and as a result our state’s economy is booming and state revenues are at an all time high. As we enter a new decade, I look forward to continuing the philosophy of reducing the tax burden on our citizens, so that they can keep and spend more of their hard-earned money, rather than government.”
The proposal 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 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.
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.
Earlier this month, the world’s largest company announced it was building its first new campus in many years.
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%.