North Carolina Republicans will aim to ax income tax

September 4, 2013

RALEIGH, N.C. — At the moment, seven states across the country don’t levy a tax on income, and North Carolina Republicans want to make it eight, according to a powerful member of the state legislature.

State Sen. Bob Rucho, a Mecklenburg County Republican and chairman of the Senate Finance Committee, said Wednesday that he hoped to use the 2015 legislative session to eliminate the state income tax, replacing it with a consumption-based sales tax to make up for the lost revenue.

“That’s a direction we’d like to go,” Rucho said in an interview as the state Senate adjourned for the year. Rucho said it was impractical to push for such a steep cut during a short session the legislature holds in even-numbered years, but that cutting the income tax was a top priority of his when the legislature reconvenes for its biennial full session.

North Carolina’s income tax accounts for about 61 percent of state revenue, Rucho said. But the revenue stream has been choppy in recent years, given the impact of the recession. The uneven results on a year-over-year basis can play havoc with annual budget planning in a state that requires a balanced budget, and it’s something Rucho said he wanted to avoid.

“We want to get away from that and go to a more flat consumption-based tax on sales taxes, both goods and services, and in return, we’ll say, ‘We’ll go to zero with the income tax.’ And that’s something we think we can achieve. It just takes time to get there,” he said.

This year, the Republican-dominated legislature instituted deep cuts in both the personal and corporate income taxes. Personal income tax rates will fall by two percentage points, from 7.75 percent to about 5.8 percent, while the corporate rate will fall from 6.7 percent to as low as 3 percent over the next several years, depending on how much revenue the state generates.

Expect to hear much more about the tax reform package in the months ahead, especially as House Speaker Thom Tillis (R) gears up to run against Sen. Kay Hagan (D) next year. Tillis, who helped broker a deal on taxes between the Senate and Gov. Pat McCrory (R), said he will use his record in this year’s legislative session to make his case to North Carolina voters. In an interview, Tillis pointed to Tax Foundation rankings that showed North Carolinians shouldering a much lower tax burden after the reform package passed the legislature than they had in previous years.

“I think moving to a consumption-based model is something we all agree on,” Tillis said. But, he cautioned: “You have to do this in a way that you can give [businesses] a high degree of confidence.”

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Reid Wilson covers state politics and policy for the Washington Post's GovBeat blog. He's a former editor in chief of The Hotline, the premier tip sheet on campaigns and elections, and he's a complete political junkie.
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