- Associated Press - Tuesday, May 17, 2016

RALEIGH, N.C. (AP) - Two House panels approved Tuesday proposed North Carolina government budget adjustments for next year that would offer substantive teacher and state employee pay increases and expand further how much personal income isn’t subject to taxes.

The committees voted for the $22.2 billion proposal for the year starting July 1, a 2.3 percent increase compared with current, first year of the two-year budget approved last September.

The Appropriations Committee debated and voted on more than 45 amendments before signing off on the plan, which is expected on the House floor Wednesday for the first of two required votes. Earlier in the day, the Finance Committee voted for the tax portions in the measure.

Tax collections that are slightly higher than expectations and lower-than-projected Medicaid enrollment and services have provided a cushion for Republican budget-writers to create what one GOP leader called “modest, well-constructed” budget.

“Our priorities are met. We put money in the bank for the inevitable rainy day,” said Rep. Paul Stam, R-Wake, the No. 2 leader in the House. Reserves would grow by $300 million to $1.4 billion.

Republicans praised their plan to increase standard deductions annually from 2017 through 2020 - those for married couples filing jointly would grow from $15,500 to $17,500 and from $7,750 to $8,750 for single filers, for example - because they said it would disproportionately benefit low- and middle-income people. With the income tax rate set to fall to 5.499 percent next year, a married couple would see their tax bill fall by $110 in 2020. Up to 70 percent of taxpayers use the standard deduction on state tax forms, according to legislative staff.

Increasing the standard deduction over time would cost $25 million to carry out in the next fiscal year, growing over time to $230 million in lost revenue by mid-2021. This on top of 2013 tax changes that reduced rates and increased standard deductions.

Democrats argue GOP tax changes have benefited the highest wage earners the most and diminished revenues that could be used to improve teacher salaries more quickly.

“Why would we as a body want to reduce taxes when we have such a serious need for our schoolteachers’ salaries?” Rep. Paul Luebke, D-Durham, asked Finance Committee colleagues.

Republicans rejected Luebke’s amendment that would have restored the state’s earned income tax credit, which was allowed to expire at the end of 2013. It also would have created a new tax bracket of 7.75 percent for the highest wage-earners - single filers making at least $500,000 and married couples making $1 million.

The House budget still would give public school teachers average raises of 4.1 percent. Early career teachers, who have received sizeable raises the past two years, only would receive $1,000 bonuses. The most veteran teachers - at least 25 years’ experience - also would receive an additional $1,000 along with a 2 percent raise.

The pay raises doesn’t reach Gov. Pat McCrory’s goal in his budget of ratcheting up average teacher pay above $50,000 this fall. But House Republicans say they get close to that total and aim to reach it next year. Teacher pay raises the past two years have helped raise North Carolina’s average pay from 47th among the states and the District of Columbia to 41st. House Republicans said the ranking should go higher now.

“It is a dramatic step forward,” said Rep. Craig Horn, R-Union, a House education budget-writer.

Most rank-and-file state employees also would get 2 percent raises and $500 bonuses in the plan. Most workers only would have received bonuses in McCrory’s budget.

Democrats want a plan to get teacher raises up to the national average. North Carolina is about $10,000 behind the national average.

“I’m disappointed we didn’t have a greater commitment to our state employees, our retirees and our teachers,” said House Minority Leader Larry Hall, D-Durham, who called the worker compensation in the budget an “election-year solution” for Republicans.

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