Tax reform is arguably the most politically difficult undertaking a policy maker can pursue. One of the reasons why tax reform is so hard is that when rates are lowered and the base is broadened, particular industries, businesses, and consumers can be adversely affected even if the reform is a net tax cut for taxpayers and an overall good the state economy. 

Facilitating or “paying for” rate-reducing tax reform through revenue triggers and the allocation of projected revenue growth has proven to be the path to tax reform that entails less political resistance and friction. Recent years have provided some examples from the states, both proposed and enacted, of revenue trigger-facilitated tax reform and how it works.

North Carolina

That tax code overhaul approved by North Carolina lawmakers in 2013 utilized revenue triggers to reduce the corporate tax rate by 63.7%, taking the rate from 6.9% (which was the highest corporate tax rate in the Southeast at that time) down to 3% (the lowest state corporate tax rate in the nation, not including the few states that do not levy a corporate tax). The 2013 North Carolina tax reform act did the following: 

Corporate Income Tax Relief:

  • Reduce rate from 6.9% to 5% by 2015;
  • If certain revenue targets were met (and they were), the rate would decrease to 4% in 2016 and 3% in 2017. (lawmakers enacted a subsequent rate reduction in 2017 that brought the corporate rate down to 2.5% in 2019)

Individual Income Tax Relief:

  • Flatten and lower rate, dropping the top rate from 7.75% to 5.75% by 2015;
  • Increase standard deduction to $7,500 (for singles);
  • Allow full deductibility of charitable contributions;
  • Fully exempt Social Security income from state income tax; 
  • Allow for certain itemized deductions (total of mortgage interest and property taxes paid would be capped at $20k); and
  • Retain current child credit of $100 for those earning $40k and increase credit to $125 for those earning under $40k.

Other Changes:

  • Cap gasoline tax;
  • Fully repeal estate tax

North Carolina’s tax code overhaul, along with subsequent rate reduction that brought the personal rate down to 5.25% and the corporate rate down to 2.5%, has improved North Carolina’s standing in the State Business Tax Climate Index.

Prior to the passage of revenue trigger-enabled tax reform in 2013, North Carolina had the nation’s 44th ranked business tax climate. Today North Carolina’s business tax climate is ranked as that nation’s 12th best

Here is a link to the legislative language of North Carolina’s revenue trigger-enabled 2013 tax reform. 


Ed Gillespie, when he was running for Governor of Virginia in 2017, introduced a pro-growth tax reform plan that would’ve significantly improved Virginia’s business tax climate, making the commonwealth’s tax code more competitive, less burdensome, and more conducive to economic growth and job creation. 

Gillespie proposed lowering personal income tax rates by 10% across the board, which his plan facilitated with revenue triggers. Gillespie’s campaign platform explained that the revenue triggers would work thusly:

“Revenue triggers will be designed by the Secretary of Finance, agency heads from the Department of Planning and Budget, Department of Taxation, Department of the Treasury in partnership with a working group to include the House Appropriations (HAC) Staff Director, Senate Finance Committee (SFC) Staff Director and other individuals as designated by the governor. The revenue triggers will be reviewed by the Governor’s Advisory Committee on Revenue Estimates (GACRE) and ultimately adopted by the General Assembly. The triggers will be designed to ensure that Virginia can maintain its existing commitment to core services.”

Most recently, New Hampshire lawmakers enacted a new budget that relies on revenue triggers to cut the state business profits tax. That tax cut will only take effect if revenue collections exceed projects by more than 6%. 

In addition to showing that significant improvements can be made to a state tax code in a short period of time, North Carolina’s experience demonstrates how revenue triggers enable lawmakers to enact rate-reducing tax reform in a fiscally responsible manner. 

Revenue Triggers Protect Fiscal Health 

By making income tax rate reduction based on certain revenue triggers being met, North Carolina lawmakers were able to significantly cut income tax rates while ensuring the state would not have revenue problems like those encountered in Kansas, a state where lawmakers irresponsibly cut taxes at the same time that they were ratcheting up state spending levels. 

Spending restraint, coupled with income tax cuts based on revenue triggers, have allowed North Carolina lawmakers to return more than $5 billion to taxpayers over the last seven years, all while the state has realized repeated budget surpluses. During this time North Carolina has outperformed the national average on job creation and economic growth. 

By eliminating the possibility of future budget deficits and reducing political resistance that comes with an overreliance on base-broadening, revenue triggers have proven to be an effective tool for reducing income tax rates in a fiscally responsible and politically palatable manner.