Last night, North Carolina’s House of Representatives approved HB 998, which is the largest tax cut in the state’s history. This bill would reduce the state’s corporate income tax rates from 6.9 percent to 5.4 percent by 2017. HB 998 also condenses North Carolina’s three-tiered tax system of 7.75 percent (which is the highest in the South), 7 percent, and 6 percent, to a flat 5.9%. The bill now goes to the Senate, where members of the upper-chamber will seek to pass a similar plan that entails even lower rates and a broader base.
North Carolina’s business tax climate is currently ranked 44th in the nation. The state has the region’s highest income tax rates and one of the nation’s highest unemployment rates. North Carolina’s onerous tax code puts the state at a competitive disadvantage. As the chart below shows, North Carolina’s lower-tax neighbors have healthier unemployment rates and have experienced a swifter recovery in jobs since the height of the recession:
Top Marginal Income Tax Rate
2009 unemployment rate
2013 unemployment rate
Percentage change from 2009 to 2013
*TN does not tax ordinary wage income, but it does tax dividends
If the bill passes the senate, North Carolina would jump from having the 44th to the 19th best business tax climate in the nation.
ATR applauds the House’s passage of tax reform and looks forward to working with North Carolina Senators to achieve similar success. The good news is that both the House and Senate plans move in the same direction. If the House and Senate can agree to implement much needed tax cuts, North Carolina can be the home of Krispy Kreme and Pepsi Cola, instead of the highest tax rates in the South.
For a copy of ATR’s letter to the North Carolina House members last week in support of tax reform, click here.