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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: FOUNDATION FISCAL FACT June 2015 No. 470 The Tax Foundation is a 501(c)(3) non-partisan, non-profit research institution founded in 1937 to educate the public on tax policy. Based in Washington, D.C., our economic and policy analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability. @2015 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Melodie Bowler Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org 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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