NC House postpones votes on constitutional amendments targeting income, property taxes

Two proposed constitutional amendments were delayed in the legislature Tuesday after the state House of Representatives canceled planned votes. The chamber plans to take up the measures on Wednesday. 

One of the proposals seeks to permanently cap the state's income tax rate at 3.5%. The other aims to regulate how quickly local governments can increase property tax rates.

Supporters say Republican-backed tax cuts in recent years have helped the economy grow, and that enshrining tax cuts into the state constitution will make them harder for future legislatures to undo. Critics say that by targeting two major sources of revenue for state government, as well as cities and counties, the amendments would go too far in limiting revenue and could force cuts to schools, police and other government services. 

If the amendments are approved by both chambers of the General Assembly, they would appear on November ballots for voters to decide their fate. 

Constitutional amendment proposals need supermajority-level support to be put on ballots. That means 30 senators need to approve of the proposals, and 72 representatives in the House. 

Republicans, who have proposed the amendments, have 71 seats in the House. They would need every member of the GOP caucus on board, plus at least one other lawmaker.

The House had originally planned to vote on the amendment proposals Tuesday afternoon, but the chamber's leader delayed the start of session for more than hour as the Republican Party caucus engaged in closed-door talks. House Speaker Destin Hall eventually announced he was taking the amendments off the calendar and would try again Wednesday to pass them.

A Hall spokeswoman told WRAL Tuesday that despite the last-minute decision to pull the amendments off the agenda, "the Speaker is confident we have the votes."

The income tax cap proposal has already cleared the Senate. That proposal, which would cut in half the state's maximum possible income tax rate from 7% to 3.5%, passed 30-18 early Tuesday, with every Republican in support and every Democrat opposed.

In 2018 voters approved an amendment lowering the maximum possible income tax rate, for either people or corporations, from 10% to 7%. The new proposed amendment would lower that cap to 3.5%  — lower even than the 3.99% tax rate in place now, or the 4.25% tax rate people paid on the 2025 taxes they just filed last month. 

“I've heard a great deal about a lot of concerns of a fiscal cliff,” Senate Majority Leader Michael Lee, R-New Hanover, said during Tuesday’s debate. “I've heard concerns about affordability, and being able to spend money. And I guess what I’d like to say to that is, the citizens of North Carolina right now are struggling with higher gas prices, higher food prices.”

Critics said that the move could leave North Carolina unable to respond adequately in the future to natural disasters, economic recessions or other emergencies. Sen. Kandie Smith, D-Pitt, asked Republicans to consider changing the amendment to say that the 3.5% cap would be lifted for two years anytime a major emergency hits the state.

“Disasters do not care about tax policy, and the state's ability to respond should not either,” Smith said, pointing to past disasters such as Hurricane Helene and Hurricane Florence. “The people in Swannanoa, in Chimney Rock, in Princeville, in Lumberton — in every community the state has had to rebuild — they're not asking for much. They're just asking that when the worst days of their lives come, their state government can still do its job and protect them.”

That argument failed to sway the proposal’s Republican supporters.

“The solution to the state is, when we have a disaster, we will suspend the 3.5% rate of the constitution, so we can take more of your money?” Sen. Ralph Hise, R-Mitchell, said. “Really? People think that's an actual solution?”

Democrats said they also suspected that, in addition to locking in tax cuts that disproportionately benefit the wealthy, Republicans hope the amendment will trick voters this November into thinking the amendment will lower their taxes immediately. It won't, since lawmakers already plan to lower the income tax rate to 3.49% next year regardless of whether the amendment passes with its proposed 3.5% cap.

"This amendment offers false hope instead of genuine help," said Sen. Lisa Grafstein, D-Wake. "If we want to do something to help families, address the childcare crisis. Raise the minimum wage. Reign in utility costs. Pay teachers."

Sen. Sydney Batch, D-Wake, the chamber's top Democrat, proposed changing the amendment to keep income taxes capped at 3.5%, but only for the bottom 99% of taxpayers. There should be no such protection for the richest 1%, she said. Republicans shot down that proposal, which failed along party lines.

The income tax cap proposal isn’t the only amendment up for consideration in the legislature. Leaders of each chamber have also agreed to back a separate proposal that could limit the ability of local governments to set property tax rates, although they’ve provided few details on what exactly it would do, saying the amendment has to pass first before they write the details into law.

"All members who are here in the next long session [starting in 2027] will have real work on this," Rep. Tricia Cotham, R-Mecklenburg, said Tuesday. "And all the specifications, things, issues, concerns, will all be brought up at that time."

The proposed property tax amendment is moving forward in the House first, then would go to the Senate if it passes the House.

While the House postponed its vote Tuesday on the property tax amendment, its members voted unanimously for another bill that would partially close a loophole for affordable housing developers to be exempted from paying property taxes. Rep. Erin Pare, R-Wake, is its main sponsor. She said too many apartment developers and others have been allowed to qualify for the tax breaks due to a recent court ruling, called the Blue Ridge case, and so she's proposing this new law to clarify who can or can't qualify. If her proposal had been in place last year, she said, Wake County alone would've collected an additional $11.4 million in revenue.

Earlier in the week a Senate committee approved two other amendments, to protect the state’s “right-to-work” laws and the “right to farm.” However, top GOP leaders haven’t expressed as much eagerness to pass those as they have the two tax amendments. Neither was allowed up for a vote in the Senate Tuesday, even as Republicans passed the other amendment on income taxes. It also wasn’t immediately clear that the right-to-work or farming amendments would lead to any changes if they passed.

Democrats were critical of GOP leaders for spending time on those issues during the legislative session, which is set to end in a little more than a month, rather than focusing on other policy issues.

“Instead of meeting today to give constituents real relief — or to solve real problems like our crumbling school buildings, or the hundreds of millions of dollars we need to find to finance SNAP administration, or the rampant closures of childcare centers — we are talking about fake problems,” said Sen. Sophia Chitlik, D-Durham. “Like adding something that is already law to our constitution and won't do a darn thing to make life easier for people in our state.”

Republicans said they're happy to let the voters of the state make the final decision on whose vision they prefer for the future of the state's taxes and finances.

"The deepest argument for this amendment is not an economic one. It's a democratic one," Lee said. "... If the citizens feel like they want to be taxed more, they won't go for it. That's really the beauty of a constitutional amendment."

The income tax cap amendment was in committee for the first time Monday night, offering a chance for public comment. A representative for the pro-business conservative group Americans for Prosperity spoke in favor. Representatives for the progressive N.C. Budget and Tax Center, and the teacher advocacy group N.C. Association of Educators spoke against it.

Senate Republicans tried pushing a less aggressive income tax cap amendment in 2024, which would've lowered the cap to 5%. House Republicans at the time wouldn't allow it up for a vote. The 3.5% proposal now under consideration is significantly more aggressive than that 2024 proposal that faced GOP pushback.

But Hall said he promised Senate leader Phil Berger support for the amendment in exchange for other considerations in ongoing state budget negotiations, such as the higher state employee raises that the House had pushed for.

GOP backers of the amendment say it will help cement the tax cuts they've worked to pass for the past 13 years, which they credit with helping the state's economy boom. Critics say it's a shortsighted effort that is likely to require hefty cuts to state government in the future. North Carolina is legally required to have a balanced budget, with no deficit spending, so any drop in revenue must be made up by either making cuts or raising revenue, such as through taxes.

Another piece of the budget deal, Hall and Berger said, was the property tax amendment.