How NC Went From One of the Worst Tax Climates to One of the Best | Eastern North Carolina Now

Publisher's note: This post, by Brian Balfour, was originally published in Civitas's online edition.

    As the traditional Tax Day of April 15 approaches, it seems appropriate to reflect on the major victories won by taxpayers over the past decade in North Carolina.

    Thanks to the last 10 years of reforms, state taxpayers are keeping more of what they earn, and the state's tax climate is far more conducive to job creators and economic growth.

    Income Taxes

    In 2010, North Carolina imposed a multi-tiered, progressive personal income tax topping out at 7.75 percent. The top rate was highest in the Southeast and tied for 11th highest nationally.

    Today the state features a flat personal income tax rate of 5.25 percent, the lowest in the Southeast among states that levy one, which ranks only 25th highest nationally. Moreover, a larger standard deduction exempts more low-income workers from having any state tax liability at all. "More than 1.5 million working families in North Carolina owe no income tax on their earnings now that the state's standard deduction has tripled," reported House Speaker Tim Moore's office in April 2019.

    Ten years ago, the state's corporate income tax rate of 6.9 percent was also highest in the Southeast. The current corporate income tax rate of 2.5 percent is the lowest among states that impose one.

    Sales Taxes

    Also in 2010, an additional 'temporary' sales tax of 1 cent statewide was in effect, costing taxpayers about $1 billion per year. This was imposed largely at Gov. Bev Perdue's urging in response to the revenue loss resulting from the onset of the Great Recession.

    In 2011 Perdue's plan to make permanent 75 percent of her 'temporary,' 1-cent sales tax was rebuffed by the legislature, which overrode her budget veto. The statewide sales tax has remained at 4.75 percent since.

    The bottom line: North Carolina workers, businesses and consumers are enjoying lower tax burdens now compared to a decade ago, when state government was still dominated by tax and spend liberals.

    Historic Tax Reform of 2013

    The biggest step in this significant transition away from the high-tax policies of the past occurred in 2013's historic tax reform.

    Americans for Tax Reform at the time said the changes "blew other states away" and the Wall Street Journal said the reforms were "impressive" and "a big deal for growth."

    The primary provisions in the 2013 tax reform bill included:

• Replacing a multi-tiered progressive personal income tax code topping out at 7.75 percent with a flat 5.8 percent rate. The bill also scheduled the rate to fall to 5.75 percent the following year.
• A significant increase in the standard deduction, which exempts income from taxation. The reforms increased the standard deduction for married filers from $6,000 to $15,000.
• Lowering the corporate tax from 6.9 percent to 6 percent in 2014. The bill also Included a provision to lower it to 3 percent by 2017 if certain revenue goals were met.

    Reforms dramatically improve tax climate

    In 2010, North Carolina was home to one of the worst business tax climates in the nation. North Carolina ranked a lowly 39th and imposed the highest personal income and corporate tax rates in the Southeast.

    The historic tax reforms of 2013, along with subsequent improvements, transformed North Carolina from one of the worst states to do business to one of the best. At the time of the 2013 reforms, the Tar Heel state was burdened with the 7th worst state business tax climate in the nation, according to the Tax Foundation. Immediately after the reforms, North Carolina's ranking shot up to 17th best. Continued tax cuts have boosted our state to 15th best in 2020.

    Moreover, North Carolina was rated in 2019 by Forbes magazine the best state in the U.S. to do business. CNBC rated North Carolina 3rd in their "Top States for Business" ranking.

    A 24/7 Wall St. study released last month rated North Carolina as the sixth-best state to do business, while Chief Executive magazine ranked North Carolina the fourth best state for business in their 2019 rankings.

    Conclusion

    The contrast is crystal clear: North Carolina in 2020 imposes a significantly lower tax burden on its citizens and businesses than a decade ago, and the changes have been noticed by publications and organizations across the country.

    As the traditional Tax Day approaches, North Carolinians can celebrate the victories over the past 10 years that enable them to keep more of what they earn while creating a far more inviting climate for job growth and opportunity.