The state House of Representatives gave final approval Thursday to a $391 million tax package, but the measure may have a hard time winning passage in the Senate--where leaders favor a steeper sales tax hike.
The House plan, which was approved 63-56 with mostly Democratic support, calls for the state to end payments of $333 million in reimbursements to the state's counties. In compensation, it would give each individual county permission to increase the local sales tax by half a cent.
The plan would increase a few other taxes, including income tax for couples earning over $200,000 annually, which would go up by half a percent, but only for the next three years.
The bill would also provide some tax relief, raising the child credit and the standard deduction for married couples.
The Senate leadership, however, favors a different plan that would raise the sales tax by a full cent.
Sen. David Hoyle, D-Gaston and co-chair of the Senate Finance Committee, said he expects the Senate will make significant changes to the House's bill. "I just don't think we can concede to that," he said.
Senate Majority Leader Marc Basnight, D-Dare, has said he does not want North Carolina to be the only state to raise income taxes this year.
But even if the bill is unlikely to survive the Senate unchanged, the House's passage of it was still productive, said Rep. Paul Luebke, D-Durham.
"I think that the current bill moves the revenue debate in a progressive direction," he said."What I'm hoping is that [the Senate] will realize that some element of our package, such as an income tax increase on the wealthy, [is necessary to balance the budget].
"I think that if the Senate is willing to offer a compromise that moves in our direction, then I think a settlement on the revenue bill... will not take a long time," Luebke added.
But if the two houses stick to their positions, the state could be kept waiting for some time.
"Let's gird for a long battle," said Rep. Mickey Michaux, D-Durham.
The House's Democratic leadership tried earlier this week to pass a plan that more closely resembled the Senate's, including a full one-cent sales tax hike.
But in the House, where Democrats hold a slim 62-58 majority compared to the 35-15 margin in the Senate, the leaders may not be able to find enough support to pass that proposal. Eight Democrats--including Michaux--held out for the smaller increase.
Most Republicans oppose both plans, arguing in favor of spending cuts instead.
"No sir, I can't support a tax increase, because I think we can do it without that," said Rep. Russell Capps, R-Wake. "You may wish you had a lot more money next year, and you may need that money. But that doesn't mean your boss has got to come give it to you. So we've got to live within our means."
Rep. Monroe Buchanan, R-Mitchell, joined all 62 Democrats in voting for the bill passed by the House.
In addition to the sales and income tax hikes, the bill includes a net increase of 3 percent on the liquor tax and imposes a 1 percent premiums tax on HMOs.
On the tax credit side, it would increase--over the next two years--the standard deduction for married couples from $5,000 to $6,000, and the child credit from $60 to $100. And beginning next year, the state would offer a three-day sales tax holiday in August.
But one tax credit that did not make the bill--though it had been in an earlier version--was an earned income tax credit that would benefit lower-income taxpayers.
Luebke suggested that that provision might be included in the final bill if the House and Senate reach a compromise.
The Associated Press contributed to this story.
Get The Chronicle straight to your inbox
Signup for our weekly newsletter. Cancel at any time.