North Carolina abandons progressive income tax to create jobs and opportunity

North Carolina lawmakers reached an agreement last week to overhaul the state’s tax environment. The state made a lot of changes to its tax structure, but the biggest reforms included reducing North Carolina’s corporate income tax rate and exchanging the state’s progressive tax structure in favor of a flat tax. Gov. Pat McCrory provided the...

North Carolina lawmakers reached an agreement last week to overhaul the state’s tax environment. The state made a lot of changes to its tax structure, but the biggest reforms included reducing North Carolina’s corporate income tax rate and exchanging the state’s progressive tax structure in favor of a flat tax.

Gov. Pat McCrory provided the following statement on the state’s success with tax reform:

“One of the biggest challenges we faced coming into office was working to help create jobs in the existing environment. This tax reform plan is a major step in restoring confidence in the economy so that employers start hiring again, and it will help us continue to attract new employers.  Just as important, this tax reform will allow North Carolinians to put more money in their pocketbooks so that they can spend and invest in North Carolina.”

McCrory’s website lays out the specifics of the plan, including:

Personal income tax: 

• Reduces and simplifies the three-tiered state personal income tax from the current maximum rate of 7.75 percent and minimum rate of 6 percent to 5.8 percent in 2014 and 5.75 percent in 2015

Corporate income tax:

• Reduces the corporate income tax from 6.9 percent to 6 percent in 2014 and then to 5 percent in 2015, a 29 percent rate reduction. And if the state meets revenue targets (i.e., if tax revenue grows due to a growing economy), the corporate income tax will drop to 4 percent in 2016 and 3 percent in 2017.

Other highlights:

• Caps the state gas tax
• Eliminates North Carolina’s death tax
• Preserves the sales tax refund for nonprofits

North Carolina’s bold leadership and comprehensive tax reform could move the state up to 17th from 44th in the Tax Foundation’s State Business Tax Climate index.

The North Carolina tax reform package isn’t perfect, but it’s a huge step in the right direction. Of particular importance is the fact that the state dropped its progressive income tax for a more modern and competitive flat rate income tax.

Politicians and special interest groups that are trying to pass a progressive income tax in Illinois should take special note that North Carolina opted to repeal its progressive tax to achieve financial prosperity – not the other way around.