Compared to other states in the region North Carolina has the highest top marginal rate for individual taxpayers: 7.75% at earnings of $60,000 or greater. South Carolina tops out with 7% at $13,150, Virginia 5.75% at $17,000, and Georgia with 6% at $7,000. Tennessee and Florida do not have a state level income tax.
While our top marginal rate comes into effect at a higher earnings level, our lowest marginal rate (6% for any amount earned) is higher than many states top tax bracket.
Not only is our top marginal tax rate higher than any other state in the Southeast, it is one of the highest in the country. The highest maximum rate is Hawaii?s, at 11%, one of ten states that have a higher top rate than North Carolina.
The high level of the top marginal tax rate in North Carolina is one of the factors that reduces the states economic competitiveness; according to a 2008 Tax Foundation report, which measured how state tax laws affect economic performance, out of the fifty states North Carolina ranks 39th, a poor performance to which the disincentive of the high marginal tax rate contributes. The high level of the top marginal tax rate, in combination with other state and federal taxes, has a negative effect on economic growth as well as on retaining top earners in the state.
The N.C. House budget contains proposals to add two new tax brackets, at 8.25% and 8.5%, legislation that would significantly damage the state?s economy. Learn more about this proposed tax hike here and here.
