At a news conference Monday afternoon, McCrory called it a "meaningful" and "historic" deal that will spur economic development and put money into the pockets of North Carolina taxpayers.
"This reform will put money in the pockets of North Carolinians," McCrory said. "It sends a positive signal to our citizens and most of all to job creations that North Carolina is open for business. Our goal is to get people in jobs and back to work."
The deal still has to be approved by the full General Assembly and signed into law by the governor.
Senate leader Phil Berger said the deal will lower income tax rates for all taxpayers to 5.8 percent in 2014 from the current rate of 7.75 percent. The corporate tax will be reduced to 6 percent in 2014 from the current 6.9 percent. The corporate tax would drop all the way to 3 percent by 2017 in yearly increments.
"We have worked hard on this," said Berger. "I don't think anybody here will say that what we've done is everything you could do in tax reform. What we're saying is we've made significant steps in the right direction."
McCrory said a lower corporate rate will make North Carolina more competitive with its neighbors and put more people to work.
"It's a signal that North Carolina is open for business," said McCrory.
Other highlights include:
Personal Income Tax
- Reduces and simplifies the 3-tiered state personal income tax from the current maximum rate of 7.75% and minimum rate of 6% to 5.8% in 2014 and 5.75% in 2015.
- Increases the standard deduction for all taxpayers, applied to the:
- First $15,000 of income for those married filing jointly
- First $12,000 of income for heads of household
- First $7,500 of income for single filers;
- Retains the state child tax credit and increases it for families making less than $40,000;
- Offers a $20,000 combined maximum deduction for mortgage interest and property taxes;
- Makes charitable contributions fully deductible;
- Protects all Social Security income from state taxes.
Corporate Income Tax
- Reduces the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015 a 29% rate reduction.
- If the state meets revenue targets (i.e. if tax revenue grows due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.
- Caps the state gas tax;
- Eliminates North Carolina's death tax;
- Preserves the sales tax refund for nonprofits.
Other attempts at tax reform over the past two decades have failed. Advocates of tax modernization and legislators have said North Carolina's tax system is outdated - originating from a 1930s economy of textiles and furniture. Today's economy relies more on the service and technology sectors.
After the announcement, Gerrick Brenner, the Executive Director of Progress NC, issued a statement regarding the new tax plan.
It read in part, "Gov. McCrory promised in his State of the State address that tax reform must be 'revenue neutral.' But today's budget deal is far from revenue neutral. The plan gives away huge tax breaks to the wealthy, while jeopardizing the investments that have made North Carolina such as wonderful place to live, work and raise a family—in particular, our public school system from Pre-K through the universities."
Other opponents had similar reactions.
"I can't emphasize enough how bad of a deal this is for North Carolina," said Alexandra Sirota with the progressive-leaning Budget and Tax Center. "That will mean fewer dollars to support our children's education, fewer dollars to support our courts."
"The important thing we need to be concerned about is there sufficient revenue to be sure we can hire the teachers to teach our kids" said Sen. Dan Blue, (D) Wake County.
A tax deal opens the door for other negotiators to work out differences on a two-year state government budget that was supposed to be finalized before July 1. The agreement sets in place how much money the budget writers have to spend.