North Carolina Bears Standard for Good Tax Policy

Already one of the most competitive tax environments in the country, North Carolina tax collections again met a threshold that will trigger another reduction in the state’s corporate tax rate, bringing it to 3 percent on January 1, 2017. In July 2013, Governor Pat McCrory signed into law one of the most significant tax reform bills in recent memory. It would reduce the state corporate tax rate to 4 percent in 2016 and to 3 percent in 2017, provided certain revenue targets were met. Further, the reforms eliminated North Carolina’s estate tax, and converted the progressive personal income tax to a flat rate.

Only three years ago, North Carolina imposed a steep 6.9 percent state corporate tax rate, a top personal tax rate of 7.75 percent and a top estate tax rate of 16 percent. The Tar Heel State’s subsequent work to reform its tax code continues to propel the state far ahead of growth expectations. In a recent press release, Governor McCrory stated:

Even in an environment of historic tax cuts saving taxpayers more than $4.4 billion over five years, state revenues continue to grow due to our tremendous job growth, economic expansion, and responsible fiscal management.

To those familiar with the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, it should come as no surprise how North Carolina rocketed from 22nd to 2nd place in just three years.

Better still, contrary to the fears of many opponents, North Carolina enacted fundamental tax reforms while maintaining its AAA bond rating.

The good news keeps coming – in 2017, the state personal income tax rate is scheduled to be reduced to 5.499 percent. In the most recent legislative session, a bill to amend the state constitution and cap the rate at 5.5 percent was introduced. While the measure failed to advance before legislators adjourned the session, similar efforts are likely to continue.

Representative Jason Saine, a member of the ALEC Board of Directors and senior chairman of the North Carolina House Finance Committee, said in a statement to ALEC:

What we have done in North Carolina demonstrates that strong free market tax and fiscal policy produces the right kind of results for our citizens. Our tax reform is a pathway for other states to govern responsibly and to compete in a global marketplace.

The new corporate tax rate, combined with other highly competitive tax rates, will help ensure that North Carolina remains one of the nation’s friendliest environments for businesses, spurring additional job growth in the state. To quote a famous cereal advert, “What will they think up next?”

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