“Powered by an economy that has hit its stride, and turbocharged by a long track record of innovation, North Carolina is America’s Top State for Business in 2022.”
That is how CNBC described the Old North State in its announcement on July 13, and citizens, lawmakers, and the business community should be proud.
But it has not been a quick or easy journey for North Carolina. It is important to remember how we got to this moment.
Ten years ago, in July 2012, our economy was floundering, and unemployment hovered around 9.5%. Since then, we’ve added more than 645,000 jobs, and the unemployment rate is below pre-COVID lockdown rates at 3.4%, according to the Bureau of Labor Statistics. That’s a lot of folks who are better off now than they were then. And there’s no doubt that their improved fortunes are at least somewhat attributable to our state tax cuts.
Since 2013, our corporate income-tax rate has dropped from 6.9 percent to just 2.5% — the lowest rate nationwide in states with a corporate tax. Even better news is that it will phase out entirely by 2029.
In 2013, the General Assembly passed the Tax Simplification and Reduction Act, and then it was signed by former Gov. Pat McCrory (R). The bill’s purpose was to reform and flatten North Carolina’s tax rates for all income taxpayers to a rate of 5.8% beginning in 2014. At that time, our individual income tax rate had a top marginal rate close to 8%, while the lowest tier was 6%.
With subsequent tax reform legislation, North Carolina’s individual income tax rate has decreased to 4.99% while increasing the standard deductions for all taxpayers.
Because of these reforms, our state made the “most dramatic improvement” in the history of the non-partisan Tax Foundation’s State Business Tax Climate Index, jumping from 44th to 12th in just one year. Now, North Carolina ranks 11th in this index. The Tax Foundation’s analysis found that if the tax policies from the 2021 state budget were implemented immediately, North Carolina’s ranking would jump to the 5th best state business tax climate.
The path to North Carolina’s economic success has not just been about tax cuts. The remarkable thing about the economic impact of the tax reforms is that the state government freed up capital to allow for job creation and wage growth; the state government did not create the jobs itself. Entrepreneurs, business leaders, and investors are the engine of the state’s economy, and they created the jobs.
And the Old North State’s economic philosophy of the past 10 years has not been without detractors.
Naysayers from the political left warned that revenues would plummet, and our state would face a budget crisis. Among them was Alexandra Sirota, director of the left-leaning North Carolina Budget and Tax Center, who predicted in 2013 that the cuts would “weaken North Carolina’s tax system and broader economy.” She also said they would “[jeopardize] our future by undermining the long-term ability of our state to maintain the building blocks of a strong economy.”
Happily, Ms. Sirota and others have been proven wrong.
Politicians have also been critical. As a candidate, then in his first years as governor, Roy Cooper often criticized the Republican-led General Assembly’s tax reforms, describing them as “corporate tax giveaways.” But results tend to be compelling things, and on November 18, 2021, Gov. Cooper signed his first budget after five years in office and put income tax reductions and a corporate tax phase-out into law.
It is an exciting time to be involved in North Carolina’s economy. Corporations are relocating here, and recent data indicates that venture capital investments are rising. If state lawmakers can continue to apply the principles of small government, free enterprise, and fiscal discipline to economic policies, then the brightest days for our state economy are still ahead of us.
This column first appeared in the July / August print edition of Carolina Journal.