by Dr. Roy Cordato
Senior Economist, Emeritas
In 2013 North Carolina instituted sweeping tax reform and began the process of making its tax system more efficient and more consistent with liberty.
There are important areas of the tax code that still need to be reformed, and the treatment of capital gains is one of those areas.
Capital gains taxes penalize saving, investment, and therefore entrepreneurship.
They do this by imposing a second layer of taxation on equity investment.
The most straightforward way to end this bias is to eliminate the tax on capital gains completely.
If abolition of the capital gains tax is considered to be too difficult a task politically, then North Carolina could take the same approach as the federal government and tax capital gains at a lower rate than ordinary income.
Another approach would be to follow the lead of some other states. For example, South Carolina allows taxpayers to reduce their capital gains by 44 percent before applying the tax, while Wisconsin allows for an exclusion of 30 percent.
Spotlight 461 North Carolina’s Capital Gains Tax: It’s time to consider a change