ICYMI: “North Carolina Has Been One of the Foremost Leaders” in Tax Reform

Raleigh, N.C. — The Tax Foundation, a nonpartisan tax policy thinktank, praised North Carolina as “one of the foremost leaders” in tax reform. Beginning January 1, 2022, North Carolina’s personal income tax rate will drop yet again until it reaches 3.99% in 2027.

Below are excerpts from the Tax Foundation’s piece on North Carolina’s tax reform. Read the full story here.

With the adoption of its new budget in mid-November, North Carolina has reinforced its position as a leader in pro-growth tax reform, becoming the 12th state to enact income tax rate reductions in 2021 alone. (An additional four states implemented income tax cuts in 2021 that were previously adopted or were automatically triggered upon meeting revenue targets.) North Carolina’s recently adopted reforms further reduce the state’s flat income tax rate, ultimately to 3.99 percent, and will eventually phase out the corporate income tax.

Even before this year’s reforms, North Carolina has been one of the foremost leaders in pro-growth, structurally sound, comprehensive state tax reform over the past decade, enacting comprehensive tax reform in 2013 and then building on those reforms in 2014, 2015, and 2017. This year, the state reinforced that legacy with reforms that will set the state up for another decade of leadership in the realm of pro-growth state tax policy changes.

While much will happen in the state tax landscape over the next decade, if North Carolina’s 2021 reforms were fully phased in now, the state would improve from 10th to 5th overall on our State Business Tax Climate Index, solidifying its position as having one of the most competitive and structurally sound tax codes in the country. North Carolina would also tie for 1st on the corporate tax component of the Index and improve from 16th to 13th on the individual tax component.

Before the 2013 reforms, North Carolina consistently ranked among the worst states on the Index, indicative of high tax rates on a narrow tax base, with economically inefficient incentives and carveouts that benefited declining legacy industries. Since then, however, it has seen the most dramatic improvement of any state over the past decade, with reforms that broadened individual and corporate income tax bases and lowered rates, broadened the sales tax base to additional consumer services, and repealed the estate tax. These reforms have helped reverse the state’s previously sluggish growth, with the state’s GDP growth rates going from lagging to exceeding the national average when comparing the seven years prior to the 2013 reforms to the seven years following.