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Gov McCrory signs tax overhaul into law

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© Gov. Pat McCrory signed "comprehensive tax reform" into law Tuesday, capping the income tax for all individuals at 5.8 percent and reducing the corporate tax to 6 percent in 2014. (Steve Sbraccia, WNCN) © Gov. Pat McCrory signed "comprehensive tax reform" into law Tuesday, capping the income tax for all individuals at 5.8 percent and reducing the corporate tax to 6 percent in 2014. (Steve Sbraccia, WNCN)

Governor Pat McCrory signed tax reform measures into law Tuesday afternoon.

The tax reform is worth $524-million over the next two years. The package caps the individual income tax at 5.8% and drops the corporate tax to 6% in 2014.

McCrory said the changes are critical to the growing state economy. He said it will help families and entice more businesses to come to North Carolina.

"I came to the governor's office a few short months ago with a sense of urgency and resolve to put North Carolinians back to work," said Governor McCrory. "I firmly believe that this reform package will prove to be critically important to growing North Carolina's economy and getting people back to work.  This tax reform package puts more money in families' budgets and will restore confidence for North Carolina businesses. Because of this package, job creators will think about relocating to our great state.

Opponents of the tax changes say they unfairly help wealthy citizens at the expense of the poor.

Late Sunday night, the Senate and the House agreed on a 20.6-billion dollar budget for North Carolina, which the governor was expected to sign as well.
The North Carolina Association of Educators said it will try to block key provisions of the spending plan in court.
The budget excludes pay raises for teachers and eliminates teacher tenure.

Superintendent of Public Instruction June Atkinson said in a statement, "For the first time in my career of more than 30 years in public education, I am truly worried about students in our care. North Carolina has moved away from its commitment to quality public schools. I am disappointed for the children in our state, who will have fewer educators and resources in their schools, as a result of the General Assembly's budget."

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Tax law changes in our state headed to Gov. Pat McCrory's desk for his expected signature.

The Republican-led House voted 77-38 Wednesday for the tax overhaul. The Senate voted 32-17 Wednesday for the deal it worked out last weekend with McCrory and House GOP leaders.

Individual and corporate income tax rates would be reduced and the sales tax adjusted with the bill to include luxury services like movies and live entertainment. McCrory has already publicly endorsed the bill.
If McCrory signs the bill, most of the changes will take place in January 2014 and July 2014. The repeal of North Carolina's estate tax, however, begins this year.

It's the first overhaul to the North Carolina tax system in 80 years. A big change to an obsolete tax code Gov. Pat McCrory says is long overdue.

"Historic tax reform that will spur economic development, create jobs and put more money into the pockets of hardworking North Carolinians," said Gov. McCrory.

9 On Your Side wanted to know exactly what it means to your bottom line. We asked Dr. Richard Ericson, Chairman of the East Carolina University Department of Economics, to break down the tax overhaul.

"Everybody is going to benefit from the tax," said Ericson.

Gov. McCrory's tax overhaul will flatten out the income tax rate to 5.8 percent for all incomes, meaning you will be taxed less but critics say those more wealthy stand to gain the most.

We asked Ericson if the rich are really getting richer.

"First of all the higher incomes are paying substantially more so $80 out of a lower tax bill is not exactly the same percentage, you can never micro-manage it that way," he said.

Ericson says the tax system has an impact on our behavior. The idea of lower-income households saving less could be inaccurate because we'll find ways to save more. In other words, taxpayers find ways around the numbers.

Corporate tax rates are also cut in the bill which will add to the $500 million less in state revenue. McCrory hopes to fill that gap by cutting exemptions and increasing the sales tax on luxury services, meaning you could see more tax on services like movies and live entertainment.

Ericson says the only red flag he sees is small business which could be taxed more through the new sales tax. He says it'll take time to see what impact the new tax reform will have on our state economy.

"It seems to me, overall, that it's people in the middle income category that's going to do best out of this," said Ericson.

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Lawmakers are changing North Carolina's state tax code.

Both chambers tentatively approved a measure Tuesday. Republicans and Governor Pat McCrory said it will energize the North Carolina economy.

The plan calls for cutting corporate and individual income tax rates. But that also cuts revenue.

So to ensure it won't cost the state money, more services will now have a sales tax tacked on.

Not everyone agrees this is the best thing for the state. Critics of the bill said it will help the wealthiest citizens, but force low-income families to pay more taxes.    

Final votes are scheduled for Wednesday.

Governor McCrory could sign the bill into law before the end of the week.

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The tax system in North Carolina could see some changes next year. The House just voted 77 to 38 in favor of a tax reform plan announced Monday.

The Senate is expected to vote on the plan later Tuesday afternoon.

The plan cuts and simplifies the state income tax.

Instead of paying the current range of 6-to-almost 8-percent out of your paycheck, it requires a flat rate next year 5.8 percent.

It increases the amount of deductions to the first $15,000 for married couples filing jointly, the first $12,000 for heads of household, and the first $7,500 for single filers.

The governor said it's a good first step in improving the state's economy.

"It sends a positive signal to our citizens and most of all to job creators that North Carolina is open for business," said Governor Pat McCrory.

The Senate still needs to vote, but since the governor's already given his blessing and it's already passed the House, it could be close to a done deal.

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Details of the proposed tax overhaul agreement announced Monday by legislative leaders and Gov. Pat McCrory on Monday. The General Assembly is expected to vote on the deal later this week:
- Eliminate the current three-bracket rates of 6, 7 and 7.75 percent with one bracket with a 5.8 percent rate in 2014 and 5.75 percent in 2015.
- Eliminate personal exemptions, but increase standard deduction - currently ranging from $3,000 to $6,000 depending of filing status - from $7,500 to $15,000.
- Eliminate $4,000 deduction on government retirement income and $2,000 private retirement income.
- Allow the greater of the standard deduction or itemized deductions equal to mortgage interest and property taxes capped at $20,000, plus all charitable contributions allowed by federal tax law.
- Raise child tax credit from $100 per child to $125 for tax filers with adjusted gross income below $40,000. The $100 credit would still be eliminated for people with high incomes.
- Eliminate in 2014 a $50,000 deduction on certain business-related income approved in 2011.
- Reduce current rate of 6.9 percent to 6 percent in 2014 and 5 percent in 2015. It could fall to 4 percent in 2016 and 3 percent in 2017 if revenue growth targets are met.
Effective Jan. 1, 2014:
- Expand to include service contracts.
- Tax manufactured homes (2 percent or $300 maximum) and modular homes (2.5 percent) at full 4.75 percent state sales tax rate.
- Repeal exemptions for nutritional supplements sold by chiropractors and certain newspaper sales.
Effective July 1, 2014:
- Repeal current 3 percent franchise tax on electricity sales, replacing it with 6.75 percent combined state and local sales tax rate.
- Make piped natural gas subject to combined rate of 7 percent, end excise tax.
- Repeal sales tax holiday weekend in August and Energy Star appliance sales tax holiday weekend in November.
- Cap sales tax refunds for individual nonprofit hospitals, universities and other charities to $45 million annually.
- Extend tax credits for research and development, professional motorsports teams and aviation fuel for the teams and passenger air carriers until 2016. Other tax credits would expire as scheduled over time. The film production tax credit, for example, would expire in 2015.
- Repeal estate tax.
The plan is projected to result in $86.6 million less in state revenues during the 2013-14 fiscal year and $437.8 million less in 2014-15 compared to revenue levels if no tax changes were made. The amount extends to more than $600 million annually through mid-2018. Local governments combined would receive $14.6 million in additional revenue in 2013-14 and $36.2 million in 2014-15.
- Social Security income won't be taxed differently.
- Other services transactions, such as lawn services, automobile repairs, alterations and many business transactions will continue to be exempt from the sales tax.
Source: Fiscal Research Division, North Carolina General Assembly.

(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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