NC senators want to constitutionally cap income tax

Senate Bill 75 would offer a statewide referendum to voters on whether to add a constitutional amendment capping the income tax level at 5.5 percent

Christine T. Nguyen | The North State Journal
The North Carolina Senate convenes at the N.C. General Assembly.

RALEIGH — After several successful years of passing tax reform legislation aimed at expanding the tax base and lowering rates, some Republicans in the N.C. Senate are looking to lock in their gains via constitutional amendment. The state constitution already contains an amendment limiting the rate to 10 percent, but Senate Bill 75 would allow for a referendum on whether or not to lower the cap on income tax rates by almost half that to 5.5 percent.Sen. Andrew Brock (R-Davie), a primary sponsor of the bill, said recent economic shifts highlighted the downsides of over reliance on income taxes and a lowered cap would help ensure the lesson is learned.”It’s currently capped at 10 percent and we saw during the recession that dependence upon the income tax is not a good source for revenue,” said Brock. “It’s counterproductive to tax people on their productivity. Most economist will say you want to stay away from the income tax as much as possible.”Stay away they have, as Republican majorities have slashed personal income tax rates down to 5.4 percent since achieving legislative majorities in 2010, marking a significant departure from tax structures and trends of the last several decades.North Carolina first enacted the personal income tax in 1921, ranging from 3 to 7 percent on a progressive scale. Then, property and sales taxes made up the majority of tax revenues, with the income tax only representing approximately 10 percent of tax receipts in 1957. Brackets were added and top rates raised during the 1990s and 2000s until rates topped 8 percent and made up more than a third of state tax revenues.As the economy turned down sharply in 2008 and 2009, income tax receipts followed, leaving the state government in an unenviable fiscal situation as liabilities soared and collections sank.In recent years the trend was reversed as Republicans took control, aggressively ratcheting down rates and expanding sales taxes.”It keeps us from being heavily dependent upon it, which it is not only bad for our economy it’s bad for our state budget as well,” said Brock. “We’re trying to set up a win-win-win situation for the least amount of impact on individuals, the smallest impact possible on business, and then basically some steady consistent streams of revenue for the government to keep key operations going.”Should S.B. 75 pass the legislature and the referendum succeed, the constitutional amendment may also serve to cement the legacy of former state senator and tax hawk Bob Rucho (R-Mecklenburg). Rucho was perhaps the biggest champion of Republican-led tax reform efforts and consistently advocated for chipping away at income tax rates until they were eliminated altogether.”Sen. Rucho, he was the tip of the spear for tax reform in North Carolina and we owe a great deal of thanks to him,” said Brock of his former chamber mate. “One thing about it is it takes a while to get complete reform in place, and I think if we can keep expanding the base and lowering the rates then hopefully we can have it one day where it’s zero-zero.”Corporate income tax rates have also come down considerably in recent years, and their contribution to total tax receipts has dwindled as well, so might the General Assembly cap that rate as well?”For the corporate income tax I think that without an amendment it’s going to go away, and we’re looking at how to wean ourselves off that,” said Brock.The ability for current lawmakers to bind future legislatures on issues such as tax rates is very limited, a fact demonstrated by the Republicans’ tax reforms, but S.B. 75 is one way to have a lasting effect on the policy of the General Assembly for years to come.”We think by having that amendment out there on the tax level that that will send a clear signal to future legislative bodies that you need to keep it low, [income tax] is not beneficial it actually hurts the economy, and we need to make sure we lock it in place and it doesn’t go up.” said Brock.