Civitas Review

Were the State Bond and Corporate Welfare Bill Bargaining Chips for Income Tax Cut?


There has been much written about the tax changes included in this year's final budget bill. Most notable among the changes were a decrease in the personal and corporate income tax rates, the creation of a new historic preservation tax credit, a shift in the formula for corporate taxes to a single sales factor, and the expansion of the sales tax base to some services – accompanied by a new distribution formula for the new revenue created by the new tax.

But an interesting aspect of these tax reforms, however, has not been discussed. Included at the end of the tax change section in the budget bill is the following qualifier:

ENACTMENT CONTINGENCIES SECTION 32.21A. Unless both House Bill 117 and House Bill 943 of the 2015 Regular Session of the General Assembly are ratified prior to January 1, 2016, all sections of this Part are repealed, except for Section 32.18, Section 32.19, and this section.

House Bill 117 and HB 943, respectively, refer to the "NC Competes Act" (an expansion of corporate welfare programs) and the $2 billion bond referendum proposal. These measures were approved last week.

Sections 32.18 and 32.19 of the budget bill being referenced are the sales tax expansion and the distribution formula for that new sales tax revenue.

In short, the budget bill clearly states that if the corporate welfare bill and bond referendum were not approved, then the major tax cut portions of the budget bill would not be enacted. However, the sales tax base expansion would be implemented regardless.

Is this evidence of some deal-making between the House and Senate? In other words, if appears that one side was demanding that the bond bill and corporate welfare bill be approved if the other side wants the major income tax cuts to go into effect.

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