North Carolina has been a national leader in rate-reducing tax reform since the passage of the 2013 tax reform package, which was to be followed by complementary personal and corporate income tax rate reduction over the years. The result is that over the past decade North Carolina’s personal income tax rate has been reduced by about a third and its corporate rate cut down by two-thirds from its original size. Legislation was introduced this week in the North Carolina General Assembly that would build upon these previous reforms and further improve North Carolina’s tax code.

On March 23, Senators Paul Newton (R), Warren Daniel (R), and William Rabon (R) filed SB 337, the Tax Relief and Recovery Act. SB 337 would cut the state’s flat personal income tax rate from 5.25% to 4.99%, increase the standard deduction and the child tax deduction, and also cut the corporate franchise tax.

Under SB 337, individual filers would qualify for a standard deduction of $12,750, a $2000 increase that amounts to a more than 19% boost in the deduction’s value. For married couples filing jointly, the standard deduction would increase from $21,500 to $25,500. The child deduction would also increase by $500.

With excess state revenues, Republicans are confident that even with a fiscal note of $1.86 billion, the state can and should provide this relief to taxpayers.

“We have yet another year of excess revenues and we are going to be proposing to the rest of the legislature and the governor that we reduce taxes as a result,” Senator Paul Newton told the Associated Press. “We have incredible headroom because of the economic growth and prosperity in North Carolina.”

In order to be enacted, SB 337 may ultimately have to overcome a veto from Governor Roy Cooper (D), who has been a longtime opponent of income tax rate reduction and has previously opposed franchise tax relief. In 2019, Governor Cooper vetoed legislation that would have reduced the state’s franchise tax, commenting that “Cutting taxes for corporations at more than $1 billion over five years will hurt North Carolina’s future.”

If SB 337 were to become law, it would further solidify North Carolina as a leader in smart, incremental, pro-growth tax reform. At a time when the White House and Congress are cooking up a massive federal tax hike that they hope to pass this spring, North Carolina lawmakers are smart to use the power they have to provide needed relief to their constituents in advance of the federal tax hikes that are likely to come.