John Locke Update / Research Newsletter (Archive)

Comprehensive Tax Reform with Compromise

posted on in Fiscal Insight

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Yesterday, Governor McCrory along with Senate Pro Tem Berger and House Speaker Tillis, gave a press conference from the State Capitol on what they believe to be the final version of tax reform.  This might not seem like a big deal since we have been hearing about tax reform since early 2013, but this is the first big step of a major undertaking in North Carolina’s fiscal policy.  Weeks ago news outlets reported a difference of opinion between the leaders of the two legislative chambers and the Governor, but that may seems now to have been resolved.  A step this large in tax reform hasn’t happened for more than 90 years.

The tax code under which the state is presently operating was written in the 1930s, but the reform started almost a decade prior.  By 1921, North Carolina’s tax system had changed three times within two years, even forcing the legislature to call a special session to take care of problems they found in the law.  Today there are more staff and technological advances that allow that process to move much more quickly, but the fact still remains that this process is so difficult it hasn’t been attempted since the 1920s.  The leaders in the state’s government have come to an agreement through debate and compromise to change North Carolina’s tax code to better fit the economy of the 21st Century.

The tax reform proposal presented yesterday is a great first step toward reforming North Carolina’s dated tax code.  The Tax Foundation puts out a yearly rank of the states in Business Tax Climate; currently North Carolina is 44th in the nation in favorable business climate.  Upon the passage of this plan, the state would move to 17th most favorable in most categories.

Comparison of Current and New Tax Plan


Current Law

New Plan

Personal Income

Rate

6 percent > $0

Flat 5.8 percent in 2014,
5.75 percent in 2015

7 percent > $12,750

7.75 percent > $60,000

Personal Exemption

All filers receive $2,000 or $2,500 depending on income

Married Filing Jointly – $15,000

Head of Household – $12,000

Single – $7,500

Child Credit

$100 per child for AGI < $60,000

$100 per child for AGI > $40,000

$125 per child for AGI < $40,000

Corporate Income

Rate

6.9 percent

6% in 2014, 5% in 2015, if revenues hit target then 4% in 2016 and 3% in 2017

Other Tax Changes

Mortgage & Property Tax Reimbursement

Unlimited

Cap at $20,000

Gasoline Tax

No cap

Imposed Cap on rate

Estate Tax


Removed

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Sarah Curry is Director of Fiscal Policy Studies at the John Locke Foundation. Previously, she worked for the North Carolina State Senate as a research assistant for the chairs of the Senate Agricultural Committee and headed the research efforts for… ...

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