Republicans forged ahead in their effort to transform North Carolina into a reliably red state, with Gov. Pat McCrory and top legislature leaders agreeing Monday on a tax cut plan to boost economic growth and job creation.
North Carolina has the fifth highest unemployment rate in the country. And its business climate has proved to be less attractive than that of neighboring states in recent years. The proposed tax cuts on both individual and business income are designed to remedy that.
The top rate on personal income of 7.75 percent would drop to 6 percent next year and 5.8 percent in 2015. Instead of three tax rates, there would be only one. The corporate income tax rate would dip to 6 percent from 6.9 percent in 2014, then to 5 percent in 2015. If tax revenue targets are met, it would fall to 3 percent in 2017. In addition, the inheritance tax would be eliminated and the state gas tax capped.
The agreement on taxes broke an impasse between the state’s house and senate that had lasted for weeks. Indeed, a breakthrough had appeared to be unlikely until Monday, when the governor, Senate president pro tem Phil Berger, and House speaker Thom Tillis announced the consensus plan. Berger called it an “historic deal on tax reform.”
Some Republicans had called for deeper tax cuts and Sen. Bob Ruchio of Charlotte was quoted by the Raleigh News & Observer as calling the proposed cuts as “the first itsy, bitsy step toward tax reform.” But both Berger and Tillis met with their caucuses and concluded passage is all but certain.
Berger said the cuts “are substantial, significant, and necessary.” He said differences still remain, but “we realized the importance of putting the state in a position to move ahead” economically. “It makes North Carolina much more business friendly and family friendly,” said Marc Rotterman, a Republican consultant.
For Republicans, North Carolina was the best state in the country in 2012. It was one of only two states – Indiana was the other – that President Obama won in 2008, then lost last year. And Republicans won the governorship and captured both houses of the legislature for the first time since Reconstruction.
The GOP landslide brought with it expectations for serious achievements, notably tax reform. The squabble over tax cuts threatened to dash those hopes. It also created Republican unity to break down, at least temporarily.
The tax accord is likely to lessen fears of disunity. Passage of an anti-abortion bill – now supported by Gov. McCrory – should keep social conservatives on board.
But if the Republican upsurge is to continue, the party will have to field a strong candidate against Democratic Sen. Kay Hagan in 2014. Tillis has already announced and Berger said he will decide by the end of July. “The opportunity to be a credible candidate for the Senate doesn’t come along very often,” Berger said in an interview. “I feel I’d be a strong candidate.”