As part of the FY 2009-10 budget, North Carolina introduced more than $1 billion in new taxes. Of the three major taxes typically imposed at the state level – income, sales and corporate – North Carolina managed to raise all three. The sales tax was increased by a penny, and lawmakers created a “tax surcharge” to be levied onto the corporate tax and income tax of filers above a certain income level.
State lawmakers insisted that these steps were necessary to balance the budget, and apologists justify the tax hike claiming basically that “everyone else is doing it,” and North Carolina’s economic competitiveness will not be harmed.
A report from the National Council of State Legislatures, however, shows that North Carolina stands virtually alone among southeastern states when it comes to massive tax hikes this year.
Remember, North Carolina raised all three major state taxes this year. By comparison, no other southeastern state raised even one of the three major taxes this year. The most significant tax raiser among other southeastern states was Florida, with about $1.2 billion in new taxes and another billion of increased vehicle registration fees – but remember that Florida has no income tax. Here is a list of major tax increases from around the southeast, according to the NCSL report (and from the Center on Budget and Policy Priorities):
- Florida: $946 million cigarette tax increase, $1 billion in increased vehicle registration fees, $160 million corporate tax surcharge, $90 million in higher taxes due to tax exemption changes
- Tennessee: raised taxes on HMO’s by $136 million, $10.5 million new software taxes and $25 million increase to franchise tax
- Alabama: $200 million increase on hospital assessment
- Virginia: no major tax increases, changes to personal and corporate tax rules to generate $80 million in new revenue
- Kentucky: sin taxes raised by $160 million
- South Carolina: no tax increases, actually made changes to income tax resulting in tax decrease
- Georgia: no tax increases
- Louisiana: no tax increases
- Mississippi: raised tobacco taxes by $100 million
- North Carolina: $803 million sales tax hike, $173 million income tax surcharge, $23 million corporate income tax surcharge, $69 million increased sin taxes, $12 million in new “Amazon” tax and digital taxes
By this comparison, it is easy to see that North Carolina was quite unique in the southeast in that it imposed massive tax increases to balance its budget. Aside from Florida, who was blasted by the bursting of the housing bubble, the next most significant tax hike was $200 million in Alabama – a paltry amount compared to North Carolina’s billion dollars in new taxes. Why did North Carolina resort to such measures when virtually the rest of the southeast didn’t?
Such increases in tax rates don’t bode well for North Carolina’s competitiveness. We already imposed sales, income and corporate tax rates among the highest in the region – the new higher rates will cause North Carolina to stand out in further contrast.
The Tax Foundation already ranks North Carolina’s business climate as a dismal 39th in the nation, the worst ranking in the Southeast. Likewise, the Small Business & Entrepreneurship Council ranks North Carolina a lowly 39th in terms of entrepreneur-friendly policy environments, also worst in the Southeast.
Indeed, state government’s past policies have harmed North Carolina’s economic competitiveness – and the new taxes will put us even further behind.