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What's
NCCBI's position on the tax package?
What’s in the House tax package?
 The
package cobbled together by the House Democratic leadership
includes five tax increases and two tax cuts. The two largest
tax increases are a half-cent increase in local option sales
taxes and the creation of a new 8.75 percent income-tax
bracket for some wealthy families.
Local
option sales tax: Local governments already have
agreed to give up $333.4 million a year in reimbursements from
the state for previously repealed taxes if the legislature
gives them the additional half-cent sales tax. The House
package assumes a Nov. 1 effective date for the half-cent hike
in the sales tax and a July 1 effective date for ending the
reimbursements. It also assumes the state, which collects the
sales tax and distributes the local option portion to city and
county governments, would employ a “hold harmless”
mechanism by basing the difference on 105 percent of the local
government’s state reimbursement. For the 2001-02 fiscal
year, which began July 1, the difference between the local
option tax collection and 105 percent of the reimbursement is
$202.1 million. That would rise to $311.3 million in fiscal
2005-06 (see chart above).
Higher
individual income tax: Individual income tax rates
are now 6 percent, 7 percent and 7.75 percent, depending on
taxable income. The House package proposes a new bracket for
those whose taxable incomes are twice the current 7.75 percent
rate. The proposed 8.75 percent rate would apply for married
couples filing jointly with taxable incomes over $200,000, a
head of household with a taxable income over $160,000, for a
single taxpayer with a taxable income over $120,000, and for a
married person filing separately with a taxable income over
$100,000. In the 2001 tax year (with returns due April 15,
2002), this higher tax bracket would impact 9,848 single
filers, 52,471 married couples and 1,148 heads of households,
according to the General Assembly staff. The new tax bracket
would generate $251.1 million this fiscal year, rising to
$331.1 million four years (see
chart above).
Tax
on HMOs and Blue Cross: Regular insurance carriers
pay a 1.9 percent tax on gross premiums but no corporate
income or franchise tax. Under current law, HMOs are not
subject to a gross premiums tax but do pay corporate income
and franchise taxes and the insurance regulatory fee. Blue
Cross and Delta Dental now pay a 0.5 percent premiums tax and
the insurance regulatory fee, but no corporate income or
franchise tax. The House package proposes to tax HMOs and Blue
Cross and Blue Shield of N.C. at 1 percent, bringing those
plans closer to tax equity with health plans taxed at 1.9
percent. The tax would raise $31.3 million this year.
Sales
tax on liquor: At present, there is no sales tax
charged on liquor sold in state ABC stores, but the price
already includes a 28 percent state excise tax. The House
package proposes making ABC store purchases subject to the
same 6 percent sales tax as most other items. The tax would
generate $15.9 million in revenue this year, in which the levy
would only apply, given the Oct. 1 effective date and a month
lag in collections. The amount would rise to 27.6 million in
four years.
Remove
highway use tax cap on luxury vehicles: The House
package proposes to delete the existing $1,500 cap on the 3
percent highway use tax imposed on the sale of non-commercial
vehicles. The cap only applies to vehicles with a sales price
above $50,000. According to the DMV, 4,800 such luxury
vehicles were sold in North Carolina last year. Assuming that
the average sales price of all vehicles that would become
subject to the full 3 percent highway use tax is $66,350, the
additional revenue generated would be $1.7 million this year,
rising to $2.9 million in four years.
Reduce
marriage penalty: Married couples filing jointly
pay more taxes that unmarried people filing individually
because North Carolina’s standard deduction for individuals
is $3,000 and $5,000 for married couples filing jointly. The
House package proposes to reduce the marriage penalty by
increasing the standard deduction for married couples filing
jointly to $5,500 in the 2001 tax year and to $6,000 in the
2002 year. This would reduce General Fund revenues by$41
million this year and by $46.5 million in four years.
Increase
child credit: The 1995 General Assembly created a
$60 child care tax credit. The House package proposes to
increase the tax credit to $75 this fiscal year and to $100
next year. That would reduce General Fund revenues by $20.7
million this year and by $55.3 million in four years.
What’s
NCCBI’s position on the tax package?
NCCBI
supports the half-cent increase in local option sales taxes.
The association also supports a half-cent increase in the
statewide sales tax that would automatically sunset in three
years as long as the revenue would be used entirely to shore
up the state’s financial reserves. This is in line with
NCCBI’s serious concern over losing the state’s Triple A
credit rating.
As Kirk told the House Finance Committee, NCCBI opposes any
increase in liquor taxes because that commodity already is
subject to the 28 percent excise tax and this is already
heavily taxed.
NCCBI has no formal position on the addition of another tax
bracket for higher income earners because that idea wasn’t
on the table when the Executive Committee met. The same is
true for the increased tax on luxury vehicles.
However, Kirk told the Finance Committee that NCCBI is
concerned that the additional personal income taxes will
discourage CEOs from moving their plants into North Carolina.
“Already, some financial institutions have told me they are
having a problem getting top-level managers to move to North
Caroline because of our high taxes,” Kirk said.
NCCBI opposes the HMO premiums tax because it would hurt HMOs
at a time when their balance sheets already are tight and
because the cost ultimately would be passed on to employers in
higher rates for employee health care plans.
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