The tax reform legislation approved by Congress and sent to President Trump Wednesday makes sweeping reforms to the national tax landscape, but an influential Washington-based think tank says the new law should have minimal impact on North Carolina’s tax structure.
It will, however, return more money to the Tar Heel State’s taxpayers — nearly $600 yearly to the average middle-class family.
“North Carolina residents, like all others, are going to experience tax relief,” said Jared Walczak, a senior policy analyst at the Tax Foundation. An analysis by the foundation, which studies state and federal tax policies, concluded after-tax incomes would increase 1.1 percent nationally by the end of the decade, even after temporary individual income tax cuts expire.
Nationally, the estimated gain in after-tax income for a middle-income family would be $649.43. In North Carolina it would be $591.40. In other Southeastern states it would be Florida, $562.94; Georgia, $588.80; South Carolina, $597.70; Tennessee, $564.78; and Virginia, $730.96.
The reforms should not make much of a dent in the state’s tax-collecting processes. “North Carolina’s tax code already doesn’t follow the federal code very closely, so the changes in the federal code will have very little impact on what North Carolina’s tax code looks like,” Walczak told Carolina Journal. “In other states it will have a significant impact.”
The tax bill lowers tax rates on wages, investment, and business income, broadens the tax base, increases the standard deduction for personal filers, and includes tax simplification measures. It is the most comprehensive reform since 1986.
The foundation also determined the bill would act as an economic stimulus by creating a more favorable tax climate luring more investment into the United States.
“We see growth coming from this,” Walczak said. The resulting job creation “will be a benefit for all states including North Carolina.”
North Carolina is projected to create an estimated 10,175 jobs, compared to 339,000 nationally. New job estimates for other Southeastern states are: Florida, 19,655; Georgia, 10,264; South Carolina, 4,815; Tennessee, 6,953; and Virginia, 9,185.
North Carolina’s standard deduction for personal income tax, and its corporate deduction have moved out of alignment with the federal tax code in recent years, so the federal tax reform will have a modest impact on state policy, Walczak said.
“You would have basically the same tax base as you have now,” he said.
State and local income tax deductions will now be capped at a combined $10,000 on federal tax returns, placing a greater share of the costs of state and federal government on local taxpayers.
“On the whole that’s probably a good thing for North Carolina, because this represents a transfer away from states like North Carolina towards higher-tax states,” Walczak said.
While the Joint Committee on Taxation estimated the reform bill would add nearly $1.5 trillion to the deficit in its first decade, the Tax Foundation analysis concluded the plan would add little red ink. The main reason: Economic growth generated by the reforms would produce a projected $1 trillion in new federal revenues over the period, the foundation says.