North Carolina voters will decide this fall whether to cap the state's personal and corporate income tax rates at 7 percent.
Both rates are already well below that and are slated to drop again next year as part of previously approved tax reforms. This would change the maximum future legislatures could increase those rates.
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The state constitution already has a 10 percent cap. Many Republican legislators had hoped to cap the rates at 5.5 percent, but at that rate, House Republicans had trouble getting the three-fifths support it takes to pass a constitutional amendment.
Seven percent gives future budget writers a little more breathing room, though Democrats said it might not be enough if a recession hits and takes down government revenue.
"We are handcuffing future legislatures," Rep. Pricey Harrison, D-Guilford, said Thursday.
Rep. Jeff Collins, R-Nash, said the GOP's tax reforms have helped the state economy grow, bringing in more revenue. State revenue has tracked above expectations, the state's "rainy day fund" has been replenished and state employees will get significant raises this year, but Democrats say the state has failed to invest well enough in public schools and other infrastructure.
The state's corporate tax rate is 3 percent now and slated to drop to 2.5 percent next year. The personal income tax rate is 5.499 percent now and will go to 5.25 percent next year.
The higher 7 percent cap cost the measure some support: Sens. Tamara Barringer, R-Wake, and Tommy Tucker, R-Union, voted against it. Senate President Pro Tem Phil Berger said he would have preferred the lower cap, but he encouraged fellow Republicans to vote for it.
The vote in the Senate was 33-14. In the House, it was 73-45, one vote more than it needed to pass.
Changing the constitution also requires majority approval in a statewide referendum. Voters will be asked this November to vote for or against this language: "Constitutional amendment to reduce the income tax rate in North Carolina to a maximum allowable rate of seven percent (7%)."
The change would simply strike the word "ten" from the state constitution and replace it with "seven."