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1 Scott Drenkard, North Carolina Proposal Builds on Landmark 2013 Reform 1 (2015)

handle is hein.taxfoundation/ncprop0001 and id is 1 raw text is: 










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FACT
June 2015
No. 470


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North Carolina Proposal Builds on



Landmark 2013 Reform



By  Scott Drenkard

     Economist


Executive Summary


In 2013,  North Carolina  policymakers  accomplished   fundamental   tax reform,

implementing   overhauls  in multiple areas of the tax code. The multi-bracket

individual income  tax that topped  out at 7.75 percent  was  replaced with a flat 5.75

percent  tax with a generous  standard  deduction. The  corporate  tax rate was cut

from  6.9 percent to 6 percent  in year one, with trigger reductions scheduled  to bring

the rate to 3 percent  by 2017. The  sales tax base was  broadened   to offset some  of

the revenue  reductions.



Initial indicators on the effect of the tax changes are positive. The state improved

its ranking in the State Business Tax Climate Index from 44th  to 16th,' tax revenue

exceeded   projections by $400  million this year.2 Additionally, the tax reform was

paired with  unemployment reform, and unemployment rates dropped from 8.3

percent  to 6.9 percent in the second  half of 2013.3



In recent months,  the North  Carolina House   has responded   to calls from Governor

Pat McCrory   to renew  tax incentive programs  with  a bill that allocates $45 million to

Job Development Investment Grants (JDIG).4 On June 10th, the Senate responded

with a bill that makes changes  to the existing tax incentive scheme,  but also includes

numerous   broad-based   reforms  as well.


1  Scott Drenkard & Joseph Henchman, Tax Foundation, 2015 State Business Tax Climate Index, Oct. 28, 2014, http://
   taxfoundation.org/article/2015-state-business-tax-climate-index.
2  Colin Campbell, Projections show $400 million NC surplus, The News & Observer, May 6, 2015, http://www.
   newsobserver.com/news/politics-government/state-politics/article20331933.html.
3  John Hood, Wall Street Journal, North Carolina Got It Right on Unemployment Benefits, Jul. 4, 2014, http://www.wsj.com/
   articles/john-hood-north-carolina-got-it-right-on-u nemployment-benefits-1404509638.
4  Richard Craver, Winston-Salem Journal, NC Senate Proposes New Tax Cuts, Lowers Funding for Economic Development,
   Jun. 11, 2015, http://www.journainow.com/news/state-region/nc-senate-proposes-new-tax-cuts-lowers-funding-for-
   economic/article_6f79e6ca-Ofe2-11e5-bf37-239061fec235.html.

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