Tax Foundation: How NC Can Continue Its Pro-Growth Tax Reform Legacy | Eastern North Carolina Now

    Publisher's Note: This post appears here courtesy of the John Locke Foundation. The author of this post is Brian Balfour.

    Praising North Carolina as "one of the foremost leaders in pro-growth state tax reform and relief over the past decade," the Tax Foundation last week provided some analysis and guidance for the House and Senate tax change proposals.

    "As policymakers make final decisions on which tax provisions to include in the final budget," the nation's leading independent tax policy nonprofit wrote, "priority should be given to provisions that would provide tax relief in a pro-growth or structurally sound manner."

    Foremost among the recommendations are:

• Reducing the franchise tax rate: This tax "penalizes businesses for investing in North Carolina," and only 16 states levy such a tax. Several of those states have plans to phase theirs out. The House's budget would reduce this tax by 50% over the next five years, but the Senate's budget doesn't touch it.
• Repeal the privilege license tax: This tax is levied on many kinds of workers - ranging from physicians to real estate agents to funereal directors - who require a license to practice their profession. The privilege tax generates very little revenue but at high compliance costs; and is applied very unevenly. The House budget plan eliminates the privilege tax, while the Senate plan leaves it intact.
• Increasing the standard deduction: Currently, NC's tax code exempts $12,750 and $25,500 of income from state taxation for single and married filers, respectively. The House budget would increase this deduction by $250 and $500, respectively, while the Senate leaves it untouched. What should also be considered by budget writers is indexing the standard deduction to inflation, so that people don't exceed the threshold with income increases that don't keep up with inflation, resulting in a tax bill even though their adjusted standard of living is no better.

    In addition to these, the House and Senate budgets both accelerate the decrease in the personal income tax rate, although at different speeds.

    At minimum, House and Senate budget negotiators should agree to reduce (or eliminate) the franchise tax, repeal the privilege license tax, and index the standard deduction to inflation.

    Doing so would continue to make North Carolina a national leader in pro-growth tax reform.