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State GOP Propose Billion Dollar Tax Cut: Sales Tax Expands

5:59 AM, May 8, 2013   |    comments
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Photo Credit: WRAL

Raleigh - Senate Republicans unveiled the details of a blockbuster of a tax reform bill on Tuesday, adding up to $1 billion dollars' worth of tax cuts.

The tax proposal, outlined on Tuesday by Sen. Pro Tempore Phil Berger (R, Guilford County), would be phased in starting in 2014 over a three year period, reducing tax rates across the board, including personal income taxes and corporate income taxes.

While the plan benefits upper income earners and businesses, some low income families would see their taxes go up according to a tax calculator on a website created to promote the plan, giving ammunition to Democrats who oppose the plan because they say it harms the poor and middle class. 

For example, a married couple with three kids making $40,000 per year would see their taxes go up by $600 annually.

The same couple making $100,000 per year would see a tax cut of $2,400.

During the announcement of the plan, Berger pointed to North Carolina having the highest income tax rate among high income earners compared to neighboring states.

In North Carolina, individuals who make $60,000 or more per year and couples who make $100,000 or more per year pay 7.75 percent.

This rate edges out South Carolina's highest rate of 7 percent and Virginia's highest rate of 5.75 percent.

Over three years, the proposed tax cuts for the highest income earners would drop over a three year period. In the first year of its implementation, the current rate of 7.75 percent drops to 5.5 percent, in the second year the rate drops to 5 percent, and in the third year the rate drops to 4.5 percent.

The sales tax rate would also go down from 6.75 percent to 6.5 percent, but sales tax would be expanded to include many services that are not currently subject to sales tax. 

Currently, about 30 services are subject to state sales tax in North Carolina, and the GOP proposal would increase that list to 100, including many repair services, haircuts, and pet cleaning.

Berger said the sales tax would be "expanded" so that "mechanics and lawyers are treated the same" and that "hairstylists and accountants are both taxed fairly."

With this plan, Republicans are delivering on a promise to cut business taxes, as the plan would not expand sales tax to business-to-business transactions. However, this sets up a scenario where small service oriented businesses like hair stylists' taxes will go up, but taxes on large businesses will go down.

The plan also includes a zero percent tax bracket for the first $10,000 in income in 2014, the first $12,500 in 2015 and 2016, and the first $15,000 of income in 2017.

Reaction from political leaders across the state ranged from a ringing endorsement from House Speaker Thom Tillis, to a lukewarm reception from Gov. McCrory, who said, "We look forward to reviewing the proposal and getting more details as we work to improve our outdated tax system."

Rep. Pricey Harrison (D, Guilford County) told News 2 that "Sen. Berger's tax proposal appears to slash the state's more progressive taxes, personal, corporate and inheritance taxes, and shift the burden to the poor and middle class North Carolinians by raising sales taxes."

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