When we last checked in on North Carolina, its “Republican” leaders were mulling a massive tax reconfiguration which would have raised taxes on residents of the Tar Heel State by approximately $900 million. Fortunately, that proposal failed to pass – and state leaders instead adopted a plan which will lower the state’s tax burden by $2.4 billion over the coming five years.
This plan – which we support – was signed into law last month by Gov. Pat McCrory.
The North Carolina plan does several things – most notably lowering the individual income tax to a flat rate of 5.8 percent in 2014 and 5.75 percent in 2015. Currently, the state’s top marginal rate is 7.7 percent (on individuals making more than $60,000 and couples making more than $120,000). Individuals making more than $12,750 and couples making more than $21,250 pay a 7 percent rate – the same as South Carolina taxpayers.
This will put the Tar Heel state well below South Carolina’s top marginal rate.
North Carolina will also reduce its corporate tax rate from 6.9 to 6 percent in 2014 – and cut it to 5 percent in 2015. Eventually, the corporate tax rate could drop all the way to 3 percent in the event certain revenue triggers are reached. That would also put North Carolina well below South Carolina’s 5 percent corporate tax rate.
Finally, additional relief would come in the form of the elimination of the state’s “death tax.”
Obviously, not all of these cuts constitute pure tax relief. The state’s sales tax will increase and numerous existing exemptions will be closed. But instead of an overall tax hike (or shift) – Tar Heel State leaders had the political courage to cut taxes. Not only that, they targeted these cuts where they will have the maximum economic impact.
“In short, North Carolina moves from the middle of the pack to one of the nation’s leaders in economic competitiveness,” the website American Legislator notes.
Now … let’s contrast what North Carolina has done with what S.C. Gov. Nikki Haley has proposed for the Palmetto State. In her FY 2013-14 budget proposal, Haley offered up just $29 worth of income tax relief per filer – and she put this infinitesimally small cut on a “wish list” in the event surplus revenue was available.
South Carolina has been the recipient of some terrible economic news lately. One recent report ranked the Palmetto State No. 45 out of 50 in terms of the best states to “make a living.” Another recent report ranked Haley 34th out of 45 governors in terms of private sector job creation (five governors were not ranked because they entered office in 2013). Other recent reports showed the Palmetto State as having a terrible business tax climate as well as zero upward mobility for its citizens.
This bold move by North Carolina will make it even more difficult for the Palmetto State to gain ground. And makes the failure of our “Republican” leaders to take such steps in recent years all the more inexcusable.