Tax cap constitutional amendment, plus measures on farms and unions, pass first hurdle in NC

North Carolina legislative leaders advanced a proposal Tuesday that seeks to further cap the state’s income tax rate — an effort that critics warn would restrict the state’s ability to pay for needed services. 

The proposal, Senate Bill 1080, would bake into the state constitution a law that would prevent lawmakers from increasing income tax rate above 3.5%. The measure advanced out of a key Senate committee on Monday. The full chamber could vote on the proposed constitutional amendment as soon as Tuesday. 

If both chambers approve the measure, it would appear on ballots in November for voters to decide.  

The proposal is a more aggressive version of a similar amendment, which Senate Republicans passed in 2024 along party lines, but which their fellow Republicans in the state House declined to allow up for a vote. While the idea of a 5% income tax cap failed to materialize in 2024, top GOP leaders say they’ve agreed to put the 3.5% cap on the ballot for voters this year as part of a broader deal over a new state budget plan.

Republicans in Monday’s Senate committee said it will help cement the tax cuts they’ve been steadily enacting since 2013 and wish to see remain in place. “We've seen our economy grow,” Senate Majority Leader Michael Lee, R-New Hanover, said Monday. “We've seen our revenues grow. It has been all positive.”

The amendment likely wouldn't actually lower anyone's taxes if passed. It would go into effect in 2027, and GOP leaders have said part of their budget deal also would drop the state's income tax rate from 3.99% in 2026 to 3.49% in 2027, just under the cap proposed by the amendment. Its passage could hinder any future legislature's ability to raise taxes on people or corporations.

Sen. Ralph Hise, R-Mitchell, said he wants to one day eliminate income taxes entirely. Nearly all of North Carolina’s funding for schools, prisons, transportation and other state government programs comes from taxes — mostly income taxes — but Hise said there are other ways of finding money.

“There are plenty of other options for revenue in the state, in the case that it's needed,” he said. “I fundamentally disagree with the state concept of an income tax. So, glad to see us getting there.”

Democratic Gov. Josh Stein and other critics say it could end up forcing big cuts to state government in the future, or could cause costs currently paid for by the state to be pushed off onto local city and county governments.

“The proposed constitutional amendment would put North Carolina in a financial straight jacket that could wreak havoc on our public schools and public safety,” Stein wrote when GOP leaders announced the plan last week. “If we want to continue to be the best state to live, work, and raise a family for years to come, we must be fiscally responsible and not make working families bear an unfair burden.”

On Monday Tamika Walker-Kelly, president of the North Carolina Association of Educators, said if the amendment passes, the end result will be wealthy people getting wealthier, and public schools being further squeezed. About half of the state budget every year goes toward education.

“A constitutional cap on income taxes does not protect working families,” she said. “It protects the wealthiest in North Carolina. Of course, no matter what you do, the wealthiest among us are going to be just fine. It is the families who depend on public schools to get ahead who will pay the price when state revenue is constrained.”

Lowering the tax rate has been a top priority of Senate leader Phil Berger ever since Republicans took control of the legislature, and put him in charge of the Senate, in 2011. Berger lost his primary election this March, however, so he’s entering his final few months in office. He said Friday he stands by his tax-cutting efforts.

“North Carolina’s economy is strong, and we continue to bring in substantial revenue surpluses thanks to Republican-led tax and budget policies,” Berger said after state economists said tax revenues were higher than expected, despite new tax cuts. “Our formula of low taxes, responsible spending, and reasonable regulations has led to one of the most prosperous decades in our state’s history.”

The income-tax amendment was part of a budget deal announced last week, in which lawmakers agreed on state worker raises while also maintaining plans to lower income tax rates. Negotiations on the broader budget effort are ongoing. Another part of that deal was support for a separate amendment, which House Republicans support, to limit local governments’ control over property taxes.

GOP lawmakers haven’t provided any details on how they might try to cap local property taxes — those details would only be written if the amendment passes first — and on Monday some Democrats expressed concern that there hasn’t been enough thought put to how the income and property tax changes, in combination, might harm the ability of state and local governments to function.

Sen. Val Applewhite, D-Cumberland, asked whether GOP leaders had asked the legislature’s Fiscal Research Division to research how the combination of amendments might affect government revenues and operations.

“What potentially is the impact to local and state government?” Applewhite asked.

Republican senators told her they were comfortable with the idea no matter what.

The proposed income-tax amendment was one of three amendments pushed through committees Monday. Lawmakers also advanced a bill seeking to protect the “right to farm” as proposed in Senate Bill 1081; and protect the “right to work” as proposed in Senate Bill 1082.

The farm and union bills appear to send political messages without the promise of immediate change.

The right-to-work amendment — a measure that prohibits mandatory union membership — has already been the law in North Carolina for generations. Enshrining it in the state constitution might not change anything immediately, but it would make it harder for a future legislature to repeal since doing so would take another constitutional amendment. Supporters say it’s an important, pro-business to keep in place, limiting the power of organized labor.

Opponents of the right-to-work measure indicated it was being proposed in this specific moment mostly for political reasons, perhaps to gin up voter enthusiasm among conservatives during this November’s midterm elections. National and local polling indicates Democrats have an edge in this year’s midterms.

The last time there was a similar Democratic-leaning political environment in the midterms, in 2018, Republicans also put several amendments on the ballot aimed at turning out conservatives, including an amendment supporting people’s right to hunt and fish.

“Our constitution is a sacred document, not a political tool,” Braxton Winston, president of the North Carolina AFL-CIO, told lawmakers Monday. “The constitution need not be riddled with laws that have already been securely in place for decades.”

The AFL-CIO, a federation of labor unions, strongly opposes right-to-work laws. Winston added that workers would be better off if they could more effectively unionize in North Carolina, which historically has had among the nation’s lowest rates of union membership. “These laws harm working people, they depress wages, they result in lower benefits,” Winston said.

For some senators on Monday’s committee that approved the amendment, the opposition from labor interests was all the more reason for them to support the amendment. Sen. Steve Jarvis, R-Davidson, said he grew up in another state where union membership was mandatory in some jobs, including his dad’s. He said their family suffered because his dad didn’t always support union-backed strikes.

“Everybody that went to picket got paid,” Jarvis said. “Our family didn't get paid. We hurt financially.”

The pro-farming amendment is aimed at honoring and protecting North Carolina’s largest industry: agriculture. Like the right-to-work amendment being proposed, it wasn’t immediately clear if anything would change if it were to pass. Sen. Julie Mayfield, D-Buncombe, asked that question of the bill’s lead sponsor, Sen. Lisa Barnes, R-Nash, who appeared to confirm that it was symbolic in nature.

“It doesn't seem like this amendment is actually changing anything,” Mayfied said. “So, I'm just curious why we're doing this.”

Barnes responded: “It sends a strong message to our farmers, and our ag community, that we value what they do.”