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

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.

SC Guv States Her Desire to Eliminate State Income Taxes

Last month saw Governors from three states (LA, KS, NE) publicly state their desire to eliminate income taxes. Last year Oklahoma introduced legislation to eliminate its income tax (but couldn’t get it passed into law).

Now we hear news that the governor of our southern neighbor is also contemplating income tax elimination:

Gov. Nikki Haley praised state House Republicans on Tuesday for proposing to further cut income taxes.

Measures introduced in the House differ from her recommendation, but Haley said she supports anything that reduces income taxes. Haley wants to eventually eliminate corporate and personal income taxes, as a business recruitment tool. (emphasis added)

North Carolina has a golden opportunity to get ahead of the curve in terms of eliminating the most anti-growth state taxes. Learn more at: www.noincometaxnc.org