- North Carolinians will have reason to celebrate on January 1, 2023 as they see more money in their paychecks.
North Carolinians are just weeks away from receiving more money in their paychecks, as a new income-tax reduction is set to go in effect. The action taken by state legislators last year in the 2021-22 state budget is being recognized nationally by Forbes. The magazine lists the Tar Heel state among the top five for income tax reductions for 2023. Arizona, Iowa, Idaho, and Mississippi round out the top five.
North Carolina’s 4.99% personal income tax will fall to 4.75%, a far cry from the 7.75% from a decade ago, which made it the highest personal-income tax rate in the southeast at the time. It is scheduled to reach 3.99% in 2027.
Meanwhile, the corporate tax rate of 2.50% will be lowered to 2.25% in 2025 and will be phased out in 2030.
The budget also exempted military pensions from the state income tax. North Carolina has the fifth-largest military population of any state.
The magazine cites North Carolina as a leader that other states follow.
“By making the tax code less burdensome and more competitive over the past decade but doing so in a responsible manner that did not lead to budget deficits, the tax policy changes implemented in North Carolina have been viewed by governors and lawmakers in other states as a model for pro-growth tax reform.”
This isn’t the first time North Carolina has been recognized for its conservative and responsible handling of taxpayers’ money.
North Carolina was profiled in an August Pewtrusts.org article as one of five states that uses a “budget stress test” to determine how much money should be set aside in its rainy-day fund. The stress tests are used to avert a future crisis after events like a recession or hurricane. It also allows lawmakers to see how the state budget would fare under various economic scenarios. California, Maine, New Mexico, and Utah round out the rest of the list.
North Carolina met the recommended target of the rainy-day fund when it significantly increased its savings reserve with the passage of the fiscal year 2022 budget.
Senate Leader Phil Berger, R-Rockingham, said in June that the $27.9 billion Fiscal Year 2022-23 budget had a surplus of $6 billion, of which $2 billion is expected to be recurring. The Rainy-Day Fund balance was projected to be $4.75 billion at the end of the biennium. That is an increase from the $4.25 billion projected in the last budget. A $1 billion State Inflationary Reserve was also created in anticipation of a recession.
Legislative leaders said they would not make the same mistakes state Democrats did in the run-up to the last recession with a $3.5 billion shortfall. In 2009, then-Gov. Bev Purdue, a Democrat with a Democrat-run legislature, temporarily cut teacher pay, instituted state employee furloughs, and tapped heavily into state reserves for emergency spending.
“This is a reminder of where we were in 2010,” House Speaker Tim Moore said in June. “Some of our predecessors really did not prepare for economic downturns.”
The Tax Foundation also recently ranked North Carolina 10th in the nation for its tax environment.
As the nation faces the worst inflation rate in 40 years, the tax-rate reductions may give some North Carolinians a reason to celebrate on New Year’s Day 2023.