Some positive news came out of North Carolina this week for taxpayers in the state, where Republicans who control the state legislature enacted a new two year budget that will allow their constituents to keep more of their hard-earned income. North Carolina’s new budget, enacted with a bipartisan super-majority vote overriding Gov. Roy Cooper’s (D) veto, makes the following changes to the state’s tax code, which will take effect January 1, 2019:
- Cuts the state’s flat personal income tax rate from 5.499% to 5.25%
- Reduces the corporate tax rate from 3% to 2.5%
- Increases the standard deduction for married couples filing jointly from $17,500 to $20,000
- Cuts the franchise tax rate for S-Corporations
Gov. Roy Cooper, in explaining the justification for his veto, portrayed the budget approved by both chambers of the North Carolina General Assembly as a giveaway to the wealthy. Unfortunately for Cooper, the facts show the opposite about the new budget.
The new budget approved over Cooper’s objections provides tax relief for 99% of North Carolinians. In fact, the burden of total income tax liability is transferred more from middle and low income earners to high income earners. After the reduced income tax rates go into effect in 2019, households earning less than $100,000 annually will contribute a lower percentage of total income tax collections, while those making more than $100,000 will contribute a greater share.
Another smart reform included in the new budget is the creation of the “Personal Education Savings Account” program for students with disabilities. Education Savings Accounts (ESAs) allow parents of students with special needs to customize their child’s education to best fit their needs. Each account will receive $9,000, which can be used for school tuition, books, and other education expenses. North Carolina joins Arizona, Nevada, Mississippi, Florida, and Tennessee as the handful of states with active ESA programs.
Republicans in North Carolina inherited a $2.7 billion deficit, along with the highest personal and corporate income tax rates in the region when they took over the General Assembly six years ago. Since then, Senate President Phil Berger, Speaker Tim Moore, and their colleagues have worked hard to put the state on sound financial footing, while implementing pro-growth tax reform that has made the state more attractive to job creators and investors. In addition to the pro-growth tax changes enacted in recent years, beginning with the landmark 2013 tax reform act, North Carolina lawmakers have kept growth in spending in check, and built up the largest rainy day fund in state history. In every year since Republicans took control of the state legislature, spending growth has been held below the combined rate of population growth and inflation.
“It’s unfortunate that Gov. Roy Cooper has decided to use the same obstructionist playbook as Nancy Pelosi and Washington Democrats. Fortunately for North Carolina taxpayers, Republican legislators are using the veto-proof majorities awarded to them by voters to provide further relief to North Carolina taxpayers,” said Grover Norquist, president of Americans for Tax Reform. “Individuals, families, and employers across North Carolina have been allowed to keep billions of dollars more of their hard-earned income thanks to the multiple rounds of tax reform enacted by Republican state legislators in recent years. This latest personal and corporate income tax cuts will make the state even more conducive to economic growth and job creation.”