by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
In 2013, the new Republican-led General Assembly took steps to foster economic growth by lowering the state’s corporate income tax rate. The corporate income tax is a burden that ultimately falls on workers. Moreover, high corporate taxes raise the price of investment, which disincentivizes business expenditures needed for job creation and economic growth.
At 6.9%, North Carolina’s corporate income tax rate was the highest in the southeast before the reforms. Following the reforms, the rate dropped to 6.0%, and later to 3.0% in 2017 after successfully meeting the revenue triggers put in place as a safety valve. With the latest biennium budget, passed in November 2021, the harmful tax is set to phase out entirely by 2030.
The corporate income tax made up 5% of total state General Fund tax revenue in the last fiscal year. Ten years ago, at a higher rate, it brought in 6% of total tax revenue.
Lowering the corporate income tax benefits North Carolinians in the form of more jobs and higher wages. Just as high federal corporate taxes encourage businesses and capital to move abroad, high state corporate taxes influence businesses to break ground elsewhere. Ultimately workers bear the burden of this tax as high business costs are passed down to labor.
Wage growth will not improve with a high corporate tax rate. Opponents of the move to cut taxes claim this it is a handout to wealthy corporations. But keeping taxes high and punishing corporations will reduce wages and jobs.
Building on the reforms from ten years ago, North Carolina is the nation’s top state for business.