One issue of considerable note tucked into the Senate’s proposal is a tax rate reduction on North Carolina “pass-through” businesses – like S-corps or partnerships – that file the state’s individual income tax rate.
The Senate’s plan would cap the tax rate these businesses pay at 6.9%, equivalent to the state’s corporate tax rate. Currently, the top marginal tax rate paid by these types of businesses is 7.75%, with a temporary tax “surcharge” of 2 to 3 percent added on courtesy of last year’s tax hike.
Because roughly 85-90 percent of all North Carolina businesses, and almost all small businesses, file individual tax returns; this tax rate adjustment would have broad-reaching impact. As reported by The Insider, a subscription news service:
Sen. Dan Clodlfelter, D-Mecklenburg, said the proposal is expected to lower the tax bills of a quarter million small businesses in the state. Total savings for the upcoming year would come to $39.7 million. “It will help them (business owners) sustain their businesses right now,” Clodfelter said. “It helps avoid further job losses.”
I’ve frequently recommended lowering the tax rate imposed on North Carolina’s small businesses by lowering tax rates paid by pass-throughs. The Senate’s proposal would be much more effective than the Governor’s proposed inneffective gimmicks. Here’s hoping the General Assembly keeps this sensible reform in their final budget plan.