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The North Carolina Department of Revenue has issued a notice confirming that the corporate tax rate for years beginning on or after January 1, 2017, will drop by one percent, from 4 to 3 percent. The Economic Development Partnership of North Carolina explained that this comes about by way of strong revenue growth for the just-ended fiscal year 2015-16, which triggered the reduction. Collections of $21.3 billion were more than $300 million above the threshold of $20,975,000,000 established back in 2013, when lawmakers passed House Bill 998, a major tax reform plan called the Tax Simplification and Reduction Act

In his press release celebrating the Tar Heel State’s vibrant economy, Gov. Pat McCrory asserted that “North Carolina’s business tax rate will now be the lowest in the nation among states with a business income tax. The next lowest state business income tax rate is 4.31 percent in North Dakota.” In 2013, North Carolina businesses were paying income tax at the rate of 6.9 percent. For 2015, the trigger points enabled that rate to drop to 5 percent, and a $445 million surplus at the end of June 2015 enabled another reduction, to 4 percent, for 2016.

The personal income tax rate is also scheduled for a reduction in 2017, from 5.75 percent to 5.499 percent. 

According to the Governor, “[e]ven in an environment of historic tax cuts saving taxpayers more than $4.4 billion over five years, state revenues continue to grow due to our tremendous job growth, economic expansion and responsible fiscal management…[the] news that the state has met the threshold for further tax cuts for businesses will help spur job creation and continue to make North Carolina one of the best states for business.” 

The Civitas Institute, whose mission is to facilitate the implementation of conservative policy solutions to improve the lives of all North Carolinians, is another stakeholder that is very pleased with the trend of decreasing taxes. In a guide to the past 30 years of North Carolina’s budget, it pointed out that spending and tax revenues both increased around 400 percent; and per capita state debt rose by about 700 percent. 

But now, as shown by the graphs of trends in North Carolina’s corporate income tax rates between 1985 and 2017, and the individual income tax rates between 2001 and 2017, Civitas opines that the 2013 tax reform package has taken the budget in the right direction. The corporate income tax rate graph reflects a 6 percent rate in 1985-86, a peak of 7.75 percent between 1991 and 1996, and a drastically lower rate of 3 percent for 2017. 

As for the individual income tax, from 2001 to 2013, North Carolina’s scheme, which involved several tax brackets, topped out over 8 percent. The 2013 reform replaced those brackets with a flat rate for all income levels, which, in 2014, was 5.8 percent. As noted above, this will fall to 5.499 percent in 2017.

Civitas declares that these changes provide significant relief for workers, and are crucial for small business development because most small businesses file taxes via the personal income tax code. Ultimately, it attributed the rate improvements to a “stark contrast between the former liberal leadership in Raleigh compared to the more conservative leaders in the state capital the last several years.”
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