A proposed tax cut from Senate Republicans would move North Carolina to fifth in the state business tax climate rankings, the Tax Foundation says.
North Carolina, now 10th, ranked 46th when Republicans took control of the General Assembly in 2011. The Tax Foundation is an independent, nonprofit tax research group.
The proposed cut would slash personal income tax rates by 21% for the median North Carolina household, Republican leadership says in a news release.
“The Republican philosophy for the past 10 years has been to cut taxes to make it more affordable for families and job creators to come to North Carolina. That’s working, and it’s smart policy to keep doing what works,” Sen. Paul Newton, R-Cabarrus, says in a news release. Newton chairs the Senate’s finance committee.
The proposal drops the flat income tax rate from 5.25% to 4.99% and increases the standard deduction (zero-tax bracket) from $21,500 to $25,500 for joint filers. The plan increases the child tax deduction by $500, which would bring the total deduction to $3,000 for families that earn less than $40,000 per year.
The result, the release says, is that a family of four earning less than $40,000 will pay zero income tax on the first $31,500 of earnings.
“The proposal disproportionately benefits lower earners,” the Republicans say. “Those earning less than $50,000 per year would comprise an even smaller share of the state’s tax collection — 8.8% vs. today’s 10% — while those earning more than $200,000 would comprise an even larger share of the state’s tax collection — 44.9% vs. today’s 43.4%.”
The proposal phases in a corporate income tax reduction over the next seven years. North Carolina would, then, join the six other states that have no corporate income tax.
“Over the past 10 years of Republican-led tax reductions, people and businesses have flocked to North Carolina in droves,” the release says. “There are many factors that weigh into a state’s business climate, and tax structure is one of the top considerations.
“Some have alleged that tax cuts result in lower education spending, but the past 10 years disproves that theory. Even as Republicans enacted historic tax cuts, they increased state-funded per-pupil education spending by 39%.”
At the same time, budget proposals from Democrats could lead to future tax increases.
For the new fiscal year (2021-22) beginning July 1, Gov. Roy Cooper, Carolina Journal reported, has recommended spending $26.6 billion, a 7.2% increase on the way to a 12.4% spending increase over two years. This plan would have North Carolina spending $28 billion by 2022-23. That’s a total increase of more than $3.2 billion in state spending.