THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, December 10, 1994 TAG: 9412100217
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: BY BETTY MITCHELL GRAY, STAFF WRITER
DATELINE: RALEIGH LENGTH: Long : 204 lines
North Carolinians are clearly slated to receive a tax cut when the legislature convenes in January.
The only questions are: which taxes and how do lawmakers plan to pay to absorb the loss of revenue.
The latest to join the debate are Gov. James B. Hunt Jr. and a legislative panel studying the state's revenue laws.
On Thursday, one month after Democrats took a pounding at the polls, Hunt proposed $483 million in tax cuts - the largest in state history.
The lion's share of Hunt's proposed cuts - $373 million - would go to individuals, including an increase in the standard income tax deduction, new tax credits to help working families with children and a larger homestead exemption for the elderly.
Hunt also proposed $110 million in tax cuts for business, including reducing the corporate income tax and eliminating the intangibles tax on stocks and bonds.
``North Carolina families need all the help they can get,'' Hunt said in a statement released with the highlights of his tax plan. ``I believe government can get by with less. And I believe that people ought to have a little more at the end of the day.''
The biggest piece of Hunt's plan would raise the standard income tax deduction from $2,000 to $2,500 a person. Hunt also wants a $50 per child income tax credit.
Under Hunt's plan, a family of four earning $17,000 or less a year would not pay taxes. Currently, the threshold for tax exemptions is $13,000.
For a family of four earning $30,000 a year, the deduction and child tax credit would reduce state income taxes by one-third: from $689 to $469. A single mother of two children making $20,000 a year would see a two-thirds reduction in taxes: from $282 to $92 annually.
Hunt's plan also includes a decrease in the corporate income tax rate: from 7.75 percent to 7 percent, which, Hunt said, would help big business.
Meanwhile, on Friday, the Revenue Laws Study Committee, a committee of legislative members and local government and business leaders, endorsed a proposal that would end the state's intangibles tax.
The proposal is one of 19 changes in the state's tax law - including a proposed reduction of the state's inheritance and gift taxes - that the committee will forward to the General Assembly early next year.
The committee's plan would repeal the intangibles tax retroactively to the 1994 tax year. Changes in the state's income tax law repealing the tax preference for North Carolina dividends would become effective in the 1995 tax year.
North Carolina levies an intangibles tax of 25 cents per $100 market value of stock and shares in mutual funds and levies a tax on bonds and accounts receivable.
The stock tax statute exempts a portion of corporate stock equal to the percentage of the corporation's business that is conducted in North Carolina - a provision that the state Court of Appeals found in 1993 violates the federal Constitution. On Friday, the state Supreme Court overturned the Court of Appeals ruling and found the tax valid.
Members of the Revenue Laws Study Committee maintain that the tax adversely affects economic development - causing corporate executives, retirees and wealthy individuals to leave the state or to decide against moving into the state. Opponents of the repeal say it represents a tax break on the state's wealthy residents who can most afford to pay taxes.
``It would behoove all of us to repeal this tax,'' said Senate leader Marc Basnight of Manteo. ``It will give a return to the people of this state in the form of other taxes and investments by people who pay this tax.''
North Carolina's intangibles tax generates about $125 million in revenues each year. About $93 million of that is returned to state and local governments.
The study committee proposal calls for redistributing the county money on an average daily membership basis and requiring counties to use it only for public school capital outlay purposes.
Similarly, the bill would distribute city money on a per capita basis and require cities to use it only on capital outlay projects for public buildings and infrastructures.
This plan would bring more money to northeastern North Carolina counties and reduce money to the state's major metropolitan areas - a move criticized by some committee members.
``This proposal is primarily tax relief for the wealthy,'' said Rep. Liston B. Ramsey, a Madison County Democrat and member of the study committee said of the repeal. ``This proposal takes the burden from the wealthy and puts it on the middle-class homeowners who don't have intangible wealth to make up the difference.''
Hunt's proposed tax cut and the proposals approved by the legislative study committee are the latest in an avalanche of tax cuts suggested by politicians and interest groups in the wake of the legislative elections.
Most of the proposals - including Hunt's - lack specifics on where the state will find money for the tax cuts.
Some lawmakers and political observers fear that this rush to cut taxes could hurt some of the state's badly needed programs and some of its poorer counties that can't afford to make up for the drop in state revenue with an increase in property taxes.
``The governor maintains we can afford these cuts and maintain these programs. . . But we can't foresee increases in federal mandates that are coming down from Congress,'' Rep. Howard B. Hunter, D-Northampton, said Friday.
``We've got to make up for the revenues that are cut in the governor's tax plan. And when you make up for the revenues, you have to cut programs.''
Chris Fitzsimon, executive director of the Common Sense Foundation, a Raleigh think-tank that promotes a liberal agenda, agreed.
``If you're cutting taxes for political reasons, that's not a good reason without looking at what effect it will have on programs,'' Fitzsimon said Friday.
Hunt's proposed tax cut is about twice as much as the tax cuts pledged by Republicans. The GOP won control of the House of Representatives after promising a $200 million cut in income taxes and a repeal of the intangibles tax.
But the new Republican leadership took credit for much of Hunt's initiative.
Rep. Harold Brubaker of Randolph County, the GOP speaker-elect, issued a statement saying he's glad that Hunt has joined the Republicans in promising tax relief.
``After 10 years in office, Governor Hunt has now allied himself with a conservative program of tax relief for the people of North Carolina,'' Brubaker said. ``I regard this as a victory for two-party government. The Republican agenda speaks to reducing the size of government and reducing taxes.''
One of the most contentious tax cuts among those proposed by various groups is a proposed cut in corporate taxes.
For years, big business has claimed that North Carolina is a high-tax state and that these taxes make it difficult to do business in the state.
But a recent study for the N.C. Business Council of Management and Development, made up of leaders of the 21 largest corporations in the state, shows that big firms pay less in taxes in North Carolina than they would pay in most states.
Fitzsimon said this study, along with the influx of new businesses in North Carolina, should have silenced the call to cut business taxes. He said he was disturbed by that aspect of Hunt's plan.
Rather than reducing corporate taxes, Fitzsimon and others, including the N.C. Budget and Tax Center, a newly formed organization that has studied the effects of state fiscal policy on the working poor, favor reductions in the state sales tax on food and non-prescription drugs.
A one-cent reduction in the state sales tax on food would wipe out $82 million a year in revenue, according to state budget estimates.
``It's amazing to me that we have to tax things that people need to stay alive,'' Fitzsimon said.
No matter which tax cut lawmakers seek next year, they will be limited by the amount of money available to spend.
Budget guru David Crotts of the legislature's fiscal research department estimates that about $663 million in recurring money will be available to state budget makers in 1995. Of that, about $375 million will be needed for budget mandates like Medicaid, prison costs and public school expenses. About $288 million would be left for tax cuts, salary increases and new programs.
On Friday, Basnight said that between the new money expected and waste in the state's budget, state lawmakers should be able to cut taxes without hurting existing programs. ``With a $14 billion budget,'' Basnight said, ``we should be able to find sufficient budget cuts to afford tax cuts.'' ILLUSTRATION: Photo
Gov. James B. Hunt Jr. proposes $483 million in tax cuts - the
largest in state history.
HUNT'S TAX CUT PLAN
Amounts indicate the estimated state revenue which would be lost
under such a plan.
Increase the standard income tax deduction from $2,000 to $2,500 per
person. Amount: $171 million each year. Start: July 1995.
Eliminate intangibles taxes on stocks and bonds. Amount: $129
million a year. Start: January 1995.
Create a $50 tax credit for each child. Amount: $84 million a year.
Start: January 1995.
Cut corporate income taxes from 7.75 percent to 7 percent. Amount:
$84 million a year. Start: July 1996.
Increase the homestead exemption for the elderly. Amount: $15
million a year. Start: January 1996.
PROPOSED METHODS
All 16 Northeastern North Carolina counties would receive more
money under a new plan proffered by a legislative study committee
for distributing money to county and city governments. The plan is
part of the proposed repeal of the state's intangibles tax. Although
Albemarle-area counties would benefit from the repeal, 19 of the
state's more metropolitan counties stand to receive reduced
appropriations under the plan. Counties which would benefit from a
repeal of the intangibles tax include:
COUNTY CURRENT PROPOSED
RECEIPTS DISTRIBUTION
BEAUFORT $304,700 $441,126
CAMDEN $24,888 $65,133
CURRITUCK $51,675 $167,412
DARE $190,496 $222,323
PASQUOTANK $263,290 $351,750
PERQUIMANS $26,101 $110,938
KEYWORDS: NORTH CAROLINA GENERAL ASSEMBLY TAX CUTS
by CNB