Raleigh, N.C. - Lawmakers and Gov. Pat McCrory struck a deal on tax reform Monday, ending a weeks-long impasse over how to rewrite a tax code that hasn't been significantly overhauled since the 1930s.
Republicans in the House and Senate signed off on the deal during closed-door caucus meetings Monday afternoon.
"We've done something that no legislature has done since the Great Depression," House Speaker Thom Tillis said during a news conference. "Everybody's tried to take a bite of this apple, but they fell short because they lacked the courage and they lacked the commitment to getting in a room and working out their differences."
The proposal will move North Carolina from 44th in total tax burden nationwide to 17th, Tillis said.
The measure replaces the three-tier personal income tax system with a flat tax of 5.8 percent in 2014, which drops to 5.75 percent in subsequent years. Standard deductions increase to $7,500 for single filers, $12,000 for heads of households and $15,000 for married couples.
Deductions for mortgage interest on first homes, something that had been a point of contention between the House and the Senate, will be capped at $20,000. Charitable contributions will remain fully deductible, and the state will continue to offer a child tax credit and exempt Social Security income from state taxes.
The corporate tax rate will be cut 29 percent in two years, from 6.9 percent now to 5 percent by 2015. If North Carolina meets revenue targets in the coming years, officials said, the corporate rate will drop even further, to 4 percent in 2016 and 3 percent in 2017.
The deal also repeals the estate tax, caps the state gas tax and preserves the sale tax refund for nonprofit groups.
"Our tax reform plan is not just a tax cut here and there but meaningful tax reform - historic tax reform - that will spur economic development, create jobs and put more money into the pockets of hard-working North Carolinians," McCrory said during a news conference. "This sends a positive signal to our citizens and, most of all, job creators that North Carolina is open for business."
Top lawmakers have said tax reform is "a process" and that they expect to make further tweaks to the tax code during future legislative sessions.
UNCG professor, Thom Little told WFMY News that if the this tax is approved, legislators need to find other places in the budget to compensate for the loss in income.
"That could be less money for road repairs, it could be less money for education could be less money for higher education, could be less money for social programs, but all that will be up to the legislature to decide where to find that money," said Little.
With a tax deal done, lawmakers are now free to turn their attention to the budget that spends the money taxes raised.