This week, the House will likely consider Senate Bill 75, a constitutional amendment to lower the state’s income tax rate cap to 5.5 percent. North Carolina’s constitution already caps the income tax rate at 10 percent.
The Senate passed the bill in 2017 with a 36-13 vote, and the House Rules Committee reported favorably on the bill earlier this month. If approved by three-fifths of the House this week, the measure will appear on the November ballot to be decided by popular vote. A June 2018 Civitas Poll of likely voters found that 66 percent of respondents supported a similar amendment, with 13 percent opposing the measure and 21 percent saying they were unsure.
Currently, the highest personal income tax rate in the state is 5.499 percent and the corporate income tax rate is 3 percent. Both rates are scheduled to decrease in 2019. This means that, if passed, the amendment would not result in a tax decrease, since both rates are already below the proposed 5.5 percent cap.
Despite the myths about the tax cap amendment, which tend to paint it in a negative light, North Carolina is not alone in constitutionally capping the income tax rate. In 2014, Georgia voters approved a constitutional amendment to cap the state’s income tax rate at 6 percent. The measure won 74 percent of the vote.
Other states also have constitutional limitations on their personal or corporate income tax rates as well. These limitations include:
- Michigan and Massachusetts– require a flat income tax rate
- Illinois – requires flat rate on income, and mandates the corporate income tax rate be tied to the personal income tax rate, mandating it can be no higher than a ratio of 8 to 5 for the personal relative to the corporate income tax rate
- Alabama – prescribes a corporate income tax rate of 6.5 percent in its constitution
Ultimately, lowering the income tax rate cap is a great idea. If given the chance, North Carolinians are likely to support the measure this November.
—Leah Byers, Civitas Summer Fellow