Late last week, the Tax Foundation – the nation’s leading independent tax policy research organization since 1937 – released its book “North Carolina Illustrated: A Visual Guide to Tax Reform.”
Packed with informative graphs and charts, the book is separated into three parts: North Carolina Before, The New North Carolina, and What’s Next for North Carolina?
The first section paints a picture of North Carolina’s business tax climate along with several other economic measures before our state’s historic tax reform. Among the main findings included in this section, before the 2013 reforms:
- North Carolina had the 7th-worst business tax climate in the nation, a far lower ranking than neighboring and competing states
- NC’s overall tax burden was higher than most competing states as of 2012
- The state corporate income and individual income taxes are more volatile over time than sales tax collections
- North Carolina relied far more heavily on individual income tax collections than any other state revenue source
The book moves on to the second section, which provides analysis of those 2013 tax reforms and how they altered North Carolina’s fiscal landscape.
- The reforms followed three main tenants of sound tax policy: they lowered rates, broadened the base and made the state’s tax code more neutral and simple
- North Carolina’s business tax climate was transformed from one of the worst in the nation to the top twenty, and is projected to be 13th-best in the country by 2017 when additional tax changes are fully implemented
- By 2017, NC’s individual income tax rate will be lowest in the region among states that levy an individual income tax
- By 2017, NC’s corporate income tax rate will be lowest in the country among states that levy such a tax
The final section offers opportunities for further improvement to North Carolina’s tax code. Among the most relevant suggestions and supporting data:
- North Carolina (along with the nation) has transitioned from a goods-based economy to a service-based economy. Broadening the sales tax base to services would reflect the modern economy and be key in keeping tax rates low across the board.
- There are still 51 targeted tax carve-outs for corporations in NC’s tax code. Ideally, the corporate income tax would be eliminated, but if the state insists on levying this tax, it should be applied equally to all businesses. The special tax exemptions narrow the tax base, which drives up tax rates on those left paying the tax, and increases the distortions in the marketplace.
- North Carolina is one of only 18 remaining states that levy a capital stock tax. This direct tax on business capital is especially discouraging to the capital formation that is crucial to economic growth.
The Tax Foundation’s latest publication provides a valuable contribution to the public policy arena in North Carolina. Legislators, policy analysts, reporters and interested taxpayers alike can benefit from the wealth of information presented in this visually appealing work.