Opinion: Carolina Beat

Reforms Are Producing Results

The following editorial appeared in the December 2015 print edition of Carolina Journal:

Although you may not have read it in mainstream media outlets, the series of reforms in taxation, regulation, and government operations that began in 2013, when conservatives took control of the executive and legislative branches of state government for the first time in decades, are delivering tangible benefits to North Carolina’s families and entrepreneurs.

Those benefits include lower, simpler taxes; regulations that are easier to understand and focused on limiting excessive bureaucracy; expanded educational choice, allowing families more alternatives to choose among charter schools, private schools, or home-based education; reduced public debt, led by the retirement of more than $2.5 billion in unemployment insurance debt to the federal government; and an overall economic environment making it easier for individuals to invest their financial and human capital into new or growing businesses.

Weve seen steady job and income growth — in fact, North Carolina is the only Southern state to rank in the top 10 nationally in both factors, based on recent federal statistics. Prudent fiscal policy has kept increases in state spending below the combined rates of inflation and population growth. And retiring the federal unemployment debt will end a business surcharge, resulting in nearly a half-billion dollars in tax relief this year and next — some of it retroactive to January.

The Tax Foundation’s just-released 2016 State Business Tax Climate Index underscores the improvements in North Carolina’s environment for entrepreneurship. The index considers a host of factors relating to tax rates and structure, compares the states, and ranks them accordingly.

As the 2013 legislative session opened, the state ranked 44th nationally, much lower than any of our neighbors — our direct economic competitors — and the lowest of any Southern state. But the significant changes that have taken effect since then have vaulted North Carolina nearly 30 slots, to 16th in the 2015 index and 15th in the newest rankings.

The changes that boosted North Carolina’s national standing resulted from several tax reforms.

Personal income-tax changes included replacing graduated rates with one flat rate; lowering the tax rate; broadening the tax base by closing or limiting many credits and deductions; expanding the child tax credit and standard deduction; and repealing the estate tax.

Business tax reforms were led by lowering the corporate income tax rate over three years with a further cut subject to a revenue trigger; broadening the tax base by allowing many credits to expire; and eliminating local business privilege taxes.

The sales tax changes included broadening the base to include some service contracts; eliminating state sales tax holidays; and ending special sales tax rates for electricity, piped natural gas, amusements, and entertainment.

Tax Foundation scholars project that, if scheduled tax cuts go forward, North Carolina should reach No. 13 nationally, and additional reforms could push us into the top 10. North Carolinians hoping to see more money in their paychecks, additional employment options, and greater opportunities for their families, should be mindful of the reforms that have elevated our economic prospects, and push their elected representatives to stay on track.