The North Carolina House and Senate are weighing three different tax proposals that have prompted a heated debate about how the outcome will affect the residents and economy of the state.
Currently, there are two tax reform bills in the Senate and one in the House. They are all based on the idea of lowering the state income tax and increasing sales taxes, though the details of the plans differ significantly.
The most notable bill is Senate Bill 677, also known as the N.C. Fair Tax Act, which would gradually cut personal income tax by about 50 percent.
However, the N.C. Fair Tax Act would also increase sales tax and expand it to include more than 100 services and goods, ranging from haircuts to groceries to auto repair. About $1 billion in revenue will be cut in the next three years but a long-term outlook suggests an overall boost to North Carolina’s economy.
Experts across the state, including N.C. State accounting professor Roby Sawyers, are studying how the N.C. Fair Tax Act would impact North Carolina’s economy.
“Overall, [the Fair Tax Act] should have a stimulative effect on the economy in the long run,” Sawyers said. “In the short run, it’s a bit more uncertain since revenues may decline. However, new companies may expand into North Carolina, and we can expect long-term economic benefits. That means more jobs in North Carolina.”
Sawyers said it was difficult to determine how the act would impact students and residents of North Carolina.
“A really broad explanation is it will help some and hurt some,” Sawyers said. “It’s hard to say exactly, because everyone consumes and does things differently. Do you go out to eat? Do you have a mortgage? Do you get a haircut? It all depends on that.”
The other two bills being debated are Senate Bill 394 and House Bill 998.
Senate Bill 394 would set a 5.95 percent flat tax on corporate and personal income and it would impose a 6.5 percent sales tax rate that would apply to goods that are currently not taxed, including lawn care and car maintenance.
House Bill 998 proposes a flat 5.9 percent tax on all income, a gradual decrease to 5.4 percent on corporate income tax and a 6.65 percent combined state and local sales tax rate that would expand to include movie tickets among other things.
At 7.75 percent, North Carolina’s income tax rate is one of the five highest income tax rates in the United States and the highest income tax rate in the Southeastern region. North Carolina also taxes fewer services than most other states.
Currently, it is uncertain which bill will be passed.
“There will be some compromise,” Sawyers said. “We may see something in the next few months. It’s hard to really guess what form the tax reform will take. But we will know soon, I hope.”
