Civitas Review

NC Tax Reform 2013: Mission Accomplished or a First Step?

By | Posted in Budget & Taxes |

The N.C. House and Senate are expected to give final approval today to tax reform legislation. From there, it will go to Gov. McCrory for his approval and then it will become law.

As reported today by the Carolina Journal, national tax analysts are saying North Carolina's tax reforms "blew other states away."

Patrick Gleason, director of state affairs at Americans for Tax Reform, spoke to the reduction in the top marginal income tax rate of 7.75 percent that would be drop in 2015 to 5.75 percent

“North Carolina, with a 25 percent reduction in the top rate, pretty much blew the other states away,” Gleason said. Gleason and Elizabeth Malm, an economist with the nonpartisan Tax Foundation, said that North Carolina ranks at the top of the nation in magnitude of tax reforms this year.

Malm said the changes would make North Carolina’s tax code friendlier for business, jumping the Tar Heel State from 44th to 17th in the Tax Foundation’s State Business Tax Climate Index.

The Wall Street Journal has also taken notice:

After months of deliberations and legislative slips and slides, North Carolina's Republican governor, Pat McCrory, and the GOP leaders who run the House and Senate have finally reached a deal on tax cuts. The plan is an impressive trifecta that will slash the personal income tax to 5.75% from 7.75%; cut the corporate tax to 5% from 6.9%; and eliminate the state death tax.

"This is a big deal for growth, and we still think we can come back in the next couple of years and get the rates even lower," says state Senate President Phil Berger. More than anyone, Mr. Berger gets credit for making this cut happen when it looked like it might die a slow death. State think tanks like the Civitas Institute, which provided the intellectual ammunition, also deserve praise. (Thanks for the shout-out!)

There is little doubt that the new tax code will be far more favorable to economic growth than the current code. Now the question becomes: is this the beginning or the end for tax reform? Senate leader Phil Berger and tax reform champion Bob Rucho have indicated this is the first step in a transition to more comprehensive tax reforms.

Indeed, the legislation includes a section directing the Revenue Laws Study Committee to study ten tax issues and report its findings next year. Included in  those ten are:

  • possible repeal of privilege taxes
  • the impact of the sales tax refund for nonprofits
  • potential elimination of the franchise tax on corporations
  • the feasibility of expanding the sales tax base to additional services

Each of these issues were included in various earlier tax proposals but didn't make it into the final bill. The fact that legislators are mandating more study on these items suggests they will be on the table in the near future.

6 Comments on this post

  • Robert says:
    Jul 24 at 07:50

    Brian, perhaps you feel that the Rich deserve to keep their tax breaks for Yacht's etc, but I for one am no fan of these so called tax breaks. Really the folks up in Raleigh take away tax breaks like back to school shopping but leave that tax break mentioned above? I am a registered independent voter, but I have always leaned right. Quite frankly from a neutral point of view with no party affiliation it looks like you folks up there in power are drunk with it and are hell bent on being a one and done majority within the Republican party.

  • larry gorski says:
    Jul 24 at 08:11

    what happened to zero income tax? even Mi has a lower tax rate, kill the income tax, kill the spending, and raise the sales tax to 8%

  • Charles says:
    Jul 24 at 09:28

    Robert: I see you have bought in to the tax cut for the rich propaganda. Actually the "poor" get big benefits too, if you look at the whole picture. This is a win for everyone except those who benefit from expanding poverty.

  • Ron says:
    Jul 24 at 11:26

    Robert: Boat-building is a large industry that provides many high-paying jobs in eastern North Carolina. Frankly, I don't know what "tax-breaks" you are referring to in your comment above. A corporation or individual conducting business is entitled to claim deductions for depreciation, maintenance and upkeep costs and, in some cases, tax credits on assets applicable to the conduct of business. These assets could include anything from sewing machines to jumbo jets. You make it sound as though there is a tax-break associated only with "yachts" owned by the rich. Perhaps you could be more specific.

  • Vic says:
    Jul 24 at 11:56

    This bill is hardly "tax reform" from what I have read. Lower tax rates are a step in the right direction, but why didn't the legislature do REAL "tax reform" and replace the income tax with a broadened sales tax?

    Overall the bill is pretty lame.

    By the way, the bill's reference to the study by the Revenue Laws Study Committee states the "Committee MAY report its findings…" Note it says MAY, not MUST.

  • David Prickett says:
    Jul 24 at 17:31

    This has to be just a first step if the goal is genuine tax reform. Next up should be to eliminate State income tax. However, I am very appreciative of the efforts so far; we are at least heading in the right direction.

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