The governor and leaders of the state House and Senate announced a breakthrough on tax reform efforts this afternoon.
Gov. Pat McCrory, Senate President Pro Tempore Phil Berger, and House Speaker Thom Tillis spoke at a 4 p.m. press conference.
Some highlights: Under the agreement, personal taxes would fall from a maximum of 7.75 percent to a flat tax of 5.8 percent in 2014 and 5.75 percent in 2015.
The standard deduction would be $15,000 for married couples filing jointly, $12,000 for head of household, and $7,500 for single filers.
The child tax credit would be retained. There would be a $20,000 maximum deduction for home mortgage deductions and local property taxes.
The corporate tax would fall from 6.9 percent to 6 percent in 2014 and 5 percent in 2015. If certain fiscal targets are met, the corporate tax would fall to 4 percent in 2016 and 3 percent in 2017.
The gas tax would be capped. The death tax would be eliminated. Social Security would be shielded from taxes.
In their comments, the Republican leaders spoke of how reforming the tax structure would make the state more competitive and productive.
The plan will be inserted into a tax bill passed earlier and sent out of conference committee back to both chambers this week for approval.
Tax Reform Proposal Highlights
Personal Income Tax:
- Reduces and simplifies the 3-tiered state personal income tax from the current maximum rate of 7.75% and minimum rate of 6% to 5.8% in 2014 and
5.75% in 2015.
- Increases the standard deduction for all taxpayers, applied to the:
- First $15,000 of income for those married filing jointly
- First $12,000 of income for heads of household
- First $7,500 of income for single filers;
- Retains the state child tax credit and increases it for families making less than $40,000;
- Offers a $20,000 combined maximum deduction for mortgage interest and property taxes;
- Makes charitable contributions fully deductible;
- Protects all Social Security income from state taxes.
Corporate Income Tax:
- Reduces the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015 a 29% rate reduction.
- If the state meets revenue targets (i.e. if tax revenue grows due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.
- Caps the state gas tax;
- Eliminates North Carolina’s death tax;
- Preserves the sales tax refund for nonprofits.
Civitas has released a study that shows the advantage of eliminating all income taxes.