RALEIGH, N.C. (AP) — Gov. Pat McCrory sided Thursday with a measured approach to overhauling North Carolina's tax system and turned away from a more dramatic proposal to greatly expand the number of transactions subject to the sales tax.
The Republican governor released a statement several hours after three separate proposals were discussed in a pair of legislative committees Thursday morning.
McCrory said the House Republican proposal and a bipartisan Senate proposal "are closest to my position." He appeared to criticize a plan backed by Senate leader Phil Berger, R-Rockingham, and his lieutenants. That proposal would broaden the sales tax base to cover more than 100 additional services and products — requiring potentially hundreds of thousands of businesses to collect sales taxes when they don't now.
"We all share the goals of reducing personal and corporate income taxes. But I cannot support a plan which turns too many North Carolinians into first-time tax collectors," McCrory said in a news release. He suggested a young adult mowing lawns might have to collect sales taxes.
He also said he was opposed to taxing food and medicine. The Senate Republican plan would end the exemption on the state's portion of the food tax and the combined state and local sales tax exemption on prescription drugs also would be eliminated.
McCrory has said he wants a plan to lower corporate and individual income tax rates so North Carolina can compete better with surrounding states. North Carolina's current 6.9 percent corporate income tax rate and 7.75 percent individual income tax rate for the highest wage earners are the highest in the Southeast.
"The final tax plan must make North Carolina more competitive in order to create jobs and put our people back to work," the governor said.
Berger and others have argued their plan would do just that, with a goal of moving the state to a consumption-based tax system they said would create economic activity and jobs in a state struggling with high unemployment nearly five years after the Great Recession.
Amy Auth, who works for Berger, said as a spokeswoman for the Senate Republican Caucus, that the chamber "is pleased to see the governor beginning to put forward the elements he would like to see included in tax reform."
Sen. Bob Rucho, R-Mecklenburg, one of the plan's authors, said in a brief interview he was surprised to hear McCrory's preference given that he ran for governor on a platform of job creation.
McCrory would be asked to sign any tax overhaul into law. No votes were taken on the three plans Thursday.
The House Republican plan and the bipartisan Senate plan lower rates but only expand the sales tax base slightly, mostly to items such as automobile repair, warranties and service contracts. It also keeps but limits income tax deductions for charitable giving and mortgage interest. The Senate GOP plan eliminates those deductions.
Rep. David Lewis, R-Harnett, the primary author of the House plan, said the proposal would be simpler to carry out. For example, automobile repair shops that already collect sales tax on parts now would be asked to collect the sales tax on labor.
"The vendors who are already collecting, remitting and storing the sales tax records for potential audit for seven years are already equipped to collect, remit and store this information," Lewis said.
Both GOP leaders have called that a tax cut of more than $1 billion over several years.
The bipartisan Senate plan is different from the other two because it's not designed to lower or raise state taxes overall, said Sen. Fletcher Hartsell, R-Cabarrus, one of the sponsors. "It is a consensus effort to look at tax reform. It is an attempt to fix an antiquated, outdated tax code," he said.
Democrats and their allies have panned both proposals as benefiting the highest wage-earners and company executives with lower personal and corporate income tax rates.
Alexandra Sirota with the North Carolina Budget & Tax Center said the plans presented Thursday "go down three different roads that all lead to the same place: tax cuts for the rich, higher taxes for everyone else, and no benefit to the state's economy."
In all three plans discussed, the current three-tiered individual income tax brackets or 6, 7 and 7.75 percent would be reduced to one flat rate ranging from 4.5 percent to 5.95 percent, depending on the proposal. Corporate income tax rates would fall to between 5.4 percent and 6 percent.