RALEIGH, N.C. (WNCN) – Republican leaders in the Senate rolled out a plan this week to make significant cuts to the state’s personal income tax rate over the next few years.
They filed the bill just as the Republican-controlled House passed its own version of the state budget, which includes tax cuts but not as steep as what Senate leader Phil Berger (R-Rockingham) and other Senate Republicans are proposing.
Under their plan, the personal income tax rate would drop from 4.75 percent this year to 4.5 percent. It would continue to drop by about half a percentage point each year until it reaches 2.49 percent in 2027.
“We’ve seen over the past several years how revenue to the state continues to grow and we see a situation where we collect more money than is needed,” said Sen. Berger. “We are in a real competition with other states. And, it’s necessary for us to remain competitive and to keep the competitive advantage that we currently have.”
The Senate’s proposed tax cuts go even further than what was included in the budget Republicans crafted two years ago, which called for the personal income tax rate to reach 3.99 percent in 2027.
Republicans also are phasing out the corporate income tax by 2030.
In his budget proposal last month, Gov. Roy Cooper (D) called for leaving the corporate income tax in place and only cutting the personal income tax rate for those making under $200,000 a year.
“Absolutely, we know that folks are feeling the pain of inflation and prices going up. But, we know that there’s a lot we have to do in regards to our infrastructure, paving our roads and bridges, education,” said Sen. Natalie Murdock (D-Durham). “I think that just such a drastic cut so quickly to me is concerning regarding our long-term ability to pay our bills and keep up with the demands of a fastly growing state.”
The state is on track to take in about $3.25 billion more than originally expected this year, according to the most recent consensus revenue forecast in February.
Kim Mackey, a Wake County teacher, says that part of the reason the state is seeing surpluses each year is because lawmakers are not adequately funding schools and other vital services.
The budget the state House of Representatives passed this week includes pay raises for teachers and state workers, but those raises are below the rate of inflation even as state agencies face unprecedented job vacancy rates.
“It’s interesting that they continue to label this a surplus when in fact it was really built on the backpacks of North Carolina school children by denying them the funding needed,” said Mackey. “Parents like me are seeing that it’s not a matter of whether our state can afford to do right by our students. It’s becoming more clear that they don’t want to properly invest in our kids.”
There are nine states that do not have a state income tax, according to Nerd Wallet.
“You see from other states that those states without an income tax do have a competitive advantage,” said Berger, when asked if he would favor eliminating the state income tax and rely on other revenue sources such as the sales tax. “That would be an ideal situation, or a more ideal situation. Whether we can get there or not remains to be seen.”