Constitutional Amendment to Cap State Income Tax Rate at 5.5% Gains Momentum…

Excerpt From: NC Capitol Connection. Written By: Mark Caulder.

The Senate Finance Committee took up a measure Wednesday that would put a constitutional amendment before the voters in 2018 to cap the state income tax at 5.5 percent, bringing it down from the current cap of 10 percent.

The bill, SB75, was introduced last year but failed to gain traction during the Short Session.

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The one-page bill, in its current form, would simply ask voters in November 2018 if they wanted a constitutional amendment limiting the state income tax to a maximum of 5.5 percent.

Currently the tax sits at 5.499 percent, but under the law it could be almost doubled before hitting the 10 percent cap.

Sen. Tommy Tucker (R-Union) introduced the bill in the Senate and also discussed it in committee Wednesday afternoon.

“This bill has been out there for some time. It basically is an act to amend the North Carolina Constitution to cap the personal income tax rate at 5.5 percent. It goes in the next election cycle before the people to vote for or against it,” he said. “It gives them the opportunity to make that decision rather than us. I’ll be glad to entertain any questions.”

Sen. Joyce Waddell (D-Mecklenburg) questioned Tucker on the bill  on whether this change would prevent lawmakers from increasing the income tax rate ever.

“We’ve visited this once before and I still want to know about the income that comes into this state and SB75,” she said. “Is there any way that Senate bill would amend the constitution to prevent future lawmakers from ever increasing the state income tax rate?”

Tucker responded that it would require another constitutional amendment, voted in by the people, to overcome the cap, but it did not leave the state unable to raise additional funds if needed in an emergency through other means.

“I think it would probably require a constitutional amendment to be able to raise that, but you have other opportunities to raise income in emergencies or recessions,” he said. “It does not, as has been stated, hog tie, hand tie or handcuff any future legislature. They can always take other means to raise taxes in an emergency if they need to.”

Waddell questioned Tucker over whether the change would have devastating effects in the state but Tucker said with the rate currently at 5.499 percent and the safeguards in place with the rainy day fund, he believes there is no reason it would.

“If you have a shortfall, if you have a recession, if you have an emergency you can always raise the sales tax a penny and you can get a billion dollars from that,” he said. “That income is immediate when it is coming in rather than waiting a year on personal income tax. This is consistent with what we have done in the past. Five-point-five percent is a good number. [The rate is] 5.499 percent now; 5.5 percent would be adequate for moving forward for the personal income tax.”

Sen. Floyd McKissick (D-Durham) made a statement against the bill during the committee meeting.

“I guess my concern about this bill, which I have articulated before, is that it does indeed put financial handcuffs on future legislators,” he said. “Constitutionally you would be pretty much limited — well, you would be limited absolutely to 5.5 percent — and if we went through a recession, like we did back in 2008, 2009, we sat there preparing a budget thinking there would be 3.5-4 percent revenue growth and we ended up with about a 15 percent revenue decrease. We were lucky, Washington helped rescue us.

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