Historic Tax Reform

North Carolina passed historic tax reform in 2013, providing much-needed tax relief for our struggling economy. The reform package includes the largest tax cut in state history, reduces tax rates on all North Carolina families and workers, and makes the Tar Heel State far more competitive for investment and job creation: the Tax Foundation stated that the change would vault North Carolina's business tax climate ranking from 7th worst in the nation to 17th best.

By implementing a flat income tax, the reforms also simplify income taxes while eliminating some special tax breaks for select special interests.

Furthermore, tax reform in North Carolina was long overdue. With a Depression-era tax code featuring some of the nation's highest tax penalties on work and investment, North Carolina's unemployment rate has been above the national average for 13 straight years, and has been among the five highest for the past few years.

The 2013 reform not only improves the state's economic climate, it better positions North Carolina for the ultimate pro-growth tax reform: elimination of state income taxes. To learn more about what income tax elimination would mean for North Carolina, visit www.noincometaxnc.org.

The major provisions of the 2013 tax reform law include:

Personal income tax rate is reduced from a progressive rate topping out at 7.75 percent to a flat rate of 5.75 percent by 2015.
A larger standard deduction of $7,500 of income for singles and $15,000 for married filers is created.
The $50,000 income deduction for small businesses is eliminated in 2014.
Social Security income will still be fully exempt.
Taxpayers will still be allowed to itemize deductions for mortgage interest and charitable contributions, capped at $20,000.
Repeals the state estate tax.
Reduces corporate income tax rate to 5 percent from the current 6.9 percent by 2015.
If certain revenue targets are met, the corporate rate would decrease to 4 percent in 2016 and 3 percent in 2015.
State sales tax rate of 4.75 percent and local rate of 2 percent remain unchanged; keeping combined rate at 6.75 percent for most counties.
Slightly expands the sales tax base to include items such as service contracts on goods and attractions (like movies, fairs).
Caps at $45 million the sales tax refund for nonprofits (including hospitals). Currently, no organizations will be impacted.
The plan will save taxpayers $2.44 billion over the next five years.

What Others Are Saying

"North Carolina's economy: plagued by rising poverty and high unemployment..."

Source: Leoneda Inge, "Census: Poverty Up in NC, Health Insurance Rate Steady", WUNC North Carolina Public Radio. Sept. 19, 2013. http://wunc.org/post/census-poverty-nc-health-insurance-rate-steady

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics. North Carolina's most recently measured rate of 8.7% is tied for sixth highest in the nation. http://www.bls.gov/lau/

"...by high taxes that discourage job creation."

Source: "Facts & Figures: How Does Your State Compare?" Tax Foundation. North Carolina's top personal income tax rate in 2013 is highest in the southeast and tied for 10th highest in the nation. NC's corporate income tax is also highest in the southeast. We define southeast to include NC, SC, TN, VA, FL and GA. http://taxfoundation.org/article/facts-figures-2013-how-does-your-state-compare

Sources: Barry Paulson, Jules Gordon Kaplan. "State Income Taxes and Economic Growth." Cato Journal, Vol. 28, No. 1 (Winter 2008). http://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2008/1/cj28n1-4.pdf

Richard Vedder, "Taxes and Economic Growth". Taxpayer's Network, Sept. 2001. http://www.taxpayersnetwork.org/_Rainbow/Documents/Taxes%20&%20Economic%20Growth,%20Dr.%20Vedder.pdf

Zsolt Besci, "Do State and Local Taxes Affect Relative Economic Growth?" Economic Review, Federal Reserve Bank of Atlanta. March/April 1996. https://www.frbatlanta.org/filelegacydocs/ACFD5.pdf

"...boosting our business tax climate from seventh worst to 17th best in the nation..."

Source: Elizabeth Malm, "North Carolina House, Senate, and Governor Announce Tax Agreement," Tax Foundation. July 13, 2013. http://taxfoundation.org/blog/north-carolina-house-senate-and-governor-announce-tax-agreement

"...meaning more jobs."

Source: Bittlingmayer, Gregory, Liesel Eathington, Arthur Hall & Peter F. Orazem (2005). "Business Climate Indexes: Which Work, Which Don't, and What can they say about Kansas?" The Center for Applied Economics, Kansas University, June 2005.
"The State Business Tax Climate Index explains growth consistently."

"This landmark tax reform is the largest tax cut in state history..."

Source: Senate President Pro Tempore Phil Berger, "Thank you for helping us pass the largest tax cut in state history." http://www.nctaxcut.com/

"...simplifies taxes and lowers tax rates for all workers while protecting social security income."

Source: HB 998 New tax law replaces progressive tax rate ranging from 6% to 7.75% with a flat rate of 5.75%, resulting in a lower rate for all taxpayers. The new law also eliminates many specific tax credits and exemptions and instead implements a sizeable standard deduction. The new law also does not change the state's exemption on social security income.