Tax Reform Train Rolls On in North Carolina


Posted by Patrick M. Gleason on Friday, May 31st, 2013, 4:16 PM PERMALINK

North Carolinians are being rewarded for voting in a more taxpayer-friendly state legislature and governor last November. Two bills were introduced in the North Carolina General Assembly this week that would move the state to a flat tax. While the proposals vary in the degree of base broadening and rate reduction, both plans move in the right direction and would generate significant tax relief.

SB 677, introduced by Senator Bob Rucho (R), would move the state from a progressive income tax code with a top rate of 7.75 percent to a flat 4.5 percent over the next several years. A House plan introduced by Rep. David Lewis (R) would move the state in a similar direction to a flat income tax of 5.9 percent. Both bills would also reduce the state corporate income tax rate.

These proposals will be the focus of debate in the closing weeks 2013 session of the North Carolina General Assembly, as lawmakers work out the differences between the plans and reach a consensus. The good news for North Carolina taxpayers is that both proposals would be a huge step in the right direction and improvement over the current tax code. It is clear that North Carolina, home to the highest personal and corporate income tax rates in the Southeast, desperately needs rate-lowering tax reform to become more economically competitive regionally, nationally, and globally.

North Carolina has higher income tax rates than all of its neighbors. Not coincidentally, it also has the highest unemployment rate in the Southeast and one of the worst in the country. In fact, only six other states have a less hospitable business tax climate. North Carolina’s onerous tax rates have been a drag on the state’s economy in recent years. A look at data from the Bureau of Labor Statistics shows that not only do North Carolina’s lower tax neighbors have healthier unemployment rates, they saw jobs come back at a greater clip since the height of the recession:

State

Top Marginal Income Tax Rate

2009 unemployment rate

2013 unemployment rate

Percentage change from 2009 to 2013

North Carolina

7.75%

10.4%

8.9%

14% drop in unemployment

South Carolina

7%

11.5%

8.0%

30.4% drop in unemployment

Georgia

6%

9.8%

8.2%

16% drop in unemployment

Virginia

5.75%

6.9%

5.2%

24% drop in unemployment

Tennessee

0*

10.7%

8.0%

25% drop in unemployment

 

 

 

* TN does not tax ordinary wage income, but it does tax dividends

Gov. Pat McCrory (R), a Taxpayer Protection Pledge signer, has come out in support of efforts in the legislature to reform the tax code in a way that reduces rates, increases efficiency, and makes the state a more attractive place to invest and create jobs.

If things continue on their current course in Raleigh, it looks as though North Carolina will no longer have the dubious distinction of having the highest tax rates in the Southeast after the legislature adjourns next month. While gridlock continues to be the name of the game in Washington, D.C., states like North Carolina, Wisconsin, and Kansas are showing Congress what it looks like to do pro-growth tax reform. 

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