North Carolina -- A billion dollars worth of tax cuts? Sounds like something to celebrate. But, of course, there's a catch. Republican State Senator Phil Berger wants to slash the state income tax from 7.75 percent to 4.5 percent. The catch? You could end paying a lot more in state sales tax.
Other states have this kind of a tax system to encourage more people and companies to locate there. Under the North Carolina proposal, the sales tax rate would drop slightly. However, the number of taxed services would climb.
Right now, about thirty services are taxed. If approved, the proposal would increase that number to about one-hundred. As a result, you would have to pay taxes on things like prescription drugs, repair services and haircuts.
"It's basically readjusting where the money is coming from to pay the taxes. It's about realigning who is paying and what amount," Certified Financial Planner Michael Wittenberg said.
According to the Republican's tax calculator, a married couple with three kids making $40,000 a year would see a $600 tax increase. If that same couple earned $100,000 a year, they would get a $2400 tax cut.
"Officials could then hope that wealthier folks, as they have more money, may do more consumption and then they could potentially pick up more revenue through the sales tax," Wittenberg said.
Certified Financial Planner Michael LoNano warns, "The risk is you cause an economic slowdown in the state because people pull back on their spending on services, where they weren't being taxed before."
Both financial experts told WFMY News 2 this kind of an idea needs lots of research and studies before moving forward.
"We need to think outside of the box. Doing it the way we have done it, I don't think is the answer. Raising taxes across the board without addressing the spending side is not the answer, either," LoNano said.
Remember, this is still just a proposal.