North Carolina’s tax code penalizes savings and investment by double taxing their returns—
specifically interest, dividends, and capital gains. These biases can only be eliminated by removing savings and investment from the tax base, or by eliminating the returns to saving; for example abolishing the taxation of capital gains. The goal should be what economists call “tax neutrality,” which implies treating all business and consumption activities equally. Along with eliminating or reducing the state’s capital gains tax, restructuring the way business deductions are taken should also be a high priority.

Spotlight 473 More to do on tax reform: Changing how business expenses are deducted