Is North Carolina Setting the Tax Code Standard?
June 17, 2015
In 2013, North Carolina policymakers accomplished fundamental tax reform, implementing overhauls in multiple areas of the tax code. The multi-bracket individual income tax was replaced with a flat 5.75 percent tax with a generous standard deduction. The corporate tax rate was cut from 6.9 percent to 6 percent in year one, with trigger reductions to bring the rate to 3 percent by 2017. The sales tax base was broadened to offset some of the revenue reductions.
The state improved its ranking in the State Business Tax Climate Index from 44th to 16th and tax revenues exceeded projections by $400 million this year.
In recent months, the North Carolina House has responded to calls from Governor Pat McCrory to renew tax incentive programs with a bill that allocates $45 million to Job Development Investment Grants.
On June 10th, the Senate responded with a broad-based reforms bill that includes:
- A reduction in the individual income tax rate from 5.75 percent to 5.5 percent by 2016;
- The reinstatement of federal deductions;
- An increase in the standard deduction from $7,500 to $9,250 by 2020;
- A decrease in the franchise tax rate from 0.15 percent to 0.1 percent;
- A reduction in the corporate rate to 3 percent by 2017; and
- Moving the state to a single sales factor corporate tax apportionment method.
The North Carolina Senate's proposed tax reform package improves further on the fundamental tax reform the state made in 2013. Though the package has been sold as an economic incentive plan, it is much more than that ― it provides broad-based tax relief across the income spectrum while broadening tax bases to offset some of the rate cuts.
Source: Scott Drenkard, "North Carolina Proposal Builds on Landmark 2013 Reform," Tax Foundation, June 15, 2015.
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