RALEIGH — Gov. Pat McCrory and his fiscal allies used Tuesday’s tax-filing deadline to highlight a tax overhaul passed last summer that they say will benefit most North Carolina residents — either by leaving more money in their wallets or providing them with new jobs. But critics insist most people will see higher taxes and government services still hindered by cash shortages.
McCrory, Republican lawmakers and representatives of conservative think tanks participated in a news conference to celebrate the law’s changes, which include lower individual and corporate income tax rates, along with the elimination of scores of credits, exemptions and deductions.
The overhaul, most of which took effect Jan. 1, will be keenly felt this time next year when 2014 returns are due.
“We’re leaving a little extra money in everyone’s paycheck from now on,” said McCrory, who signed into law the bill approved by the GOP-led legislature.
The lower rates also are making North Carolina more attractive to businesses looking to relocate or expand when McCrory competes with governors in surrounding states, McCrory added. North Carolina used to have the highest income tax rates in the Southeast.
“For the first time I can say, ‘We’re competitive now against you,’” he told reporters later.
The news conference coincided with Tuesday’s release of an annual report from the conservative-leaning American Legislative Exchange Council that ranked North Carolina the sixth most economically competitive state, compared to 22nd a year ago. Council leaders credited the tax overhaul with the jump in the economic outlook rankings, the largest this year.
Opponents of the overhaul held their own news conference to lament the loss of a refundable tax credit for the working poor that the Republican-led legislature allowed to expire with 2013 tax year filings.
Those making less than $84,000 annually, or 80 percent of all income earners, will see their overall taxes go up slightly, according to a report from the liberal-leaning North Carolina Budget & Tax Center. The finding contrasts with an analysis performed for the conservative John Locke Foundation that says the average North Carolina household in every income category will see a tax cut.
“This is a tax cut that primarily benefits wealthy taxpayers, and that’s the bottom line,” Budget & Tax Center Director Alexander Sirota said in an interview. She and Locke Foundation President John Hood defended their separate findings and report methodologies.
The Earned Income Tax Credit allowed qualifying low-income families to receive a check from state tax collectors even if the size of their credit is greater than what they owed in state taxes. More than 900,000 returns were filed asking for the credit, receiving an average of $119, the center reported, citing state Revenue Department statistics. The federal government’s more generous version of the credit remains in place.
The tax overhaul law eliminated a three-tiered personal income tax of 6, 7 and more than 7.7 percent and replaced it with a lower flat rate of 5.8 percent. The rate drops to 5.75 percent next year.
The corporate income-tax rate also fell from 6.9 percent to 6 percent this year and 5 percent in 2015. The sales tax base was broadened slightly, too, leading to higher rates for movies and other entertainment. The estate tax was repealed.
The changes will result in nearly $1.1 billion less in state revenues from this July 1 through mid-2016, according to General Assembly analysts. Republicans argue the tax cuts will spur economic growth and additional revenues. Critics such as Sirota say similar tax changes in other states have fallen short of job and revenue expectations.